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: Pension surplus ruling
EU: Acquired rights ruling; Data protection consultation
France: Budget legislation
India: Sexual harassment bill advances
Korea: Severance pay fund contributions to lose tax deduction
Netherlands: Reprieve on pension contribution increase
UK: Pension age hike acceleration
US: Consultation on corporate governance rules
Larger tax break proposed for terminal benefits
A highlight of the 2011-12 Budget now before the National Assembly is a proposal to raise the tax exemption on end-of-service “terminal” benefits from ZMK25million to ZMK35million (US$7,527). If approved, this rise will take effect on April 1, 2011.
Paid parental leave campaign; Draft regs on TPD relief; Independent contractor reform nixed
Tax Analysts, ESR, SCD
Last month, the Prime Minister launched a campaign to prepare stakeholders for the January 1, 2011, start of new entitlements under the Paid Parental Leave Act (IH 06/23/10). Centrelink has published guidance for businesses and working parents.
Also, the Treasury has opened a brief consultation on Exposure draft – Regulations –Transitional relief in respect of income tax deductibility of TPD insurance premiums by superannuation funds. The regulations would clarify those conditions under which Total and Permanent Disability Insurance (TPD) are deductible for superannuation funds for the periods 2004-5 through 2010-11 (IH 09/29/10). From July 1, 2011, only disability insurance premiums connected to a fund liability for providing disability superannuation benefits will qualify for a deduction while premiums for other types of disability benefits will not. The consultation closes today. Incidentally, the Assistant Treasurer recently advised the press that the government will not follow up on Board of Taxation recommendations in last year’s Post-Implementation Review: Alienation of Personal Services Income Rules for consideration of tougher rules on determining independent contractor status and other “employment-like arrangements.”
More on foreign worker status under draft social security law
Global Times, ILO
The social security legislation (IH 11/04/10) recently passed by the Standing Committee of the National People’s Congress lacks clarity on the issue of foreign worker participation, but the press is now more consistently saying that foreign nationals will be required to participate in the system. This actually hails back to 1996 regulations that mandated coverage for foreign workers but were ignored by all but a few cities.
Sexual harassment bill advances; EPF equity investments
Livemint, PTI, Economic Times
Protection of Women against Sexual Harassment at Workplace Bill, 2010 has secured the Cabinet’s approval more than three years after its release. The bill itself is a delayed response to a 1997 Supreme Court ruling that called for legal protections for female workers. The bill would cover women in all aspects of employment. It features painstakingly crafted definitions of the key concepts and the establishment of mechanisms for fielding complaints. The bill should reach Parliament in the current session.
In addition, the Labour Minister is expected to soon endorse a plan to allow up to 15% equity investment for the Employees’ Provident Fund (EPF). The only hitch is that he may hold out for Finance Ministry guarantees for these investments.
Severance pay fund contributions to lose tax deduction; Various
The Finance Ministry has introduced a tax reform package to further support the Employee Retirement Security Act (ERSA, IH 11/16/05) with a set of measures to establish occupational pension dominance over the Severance Payment System (SPS):
- The 30% maximum tax deduction for contributions to an SPS book reserve would fall by 5% per year until it reaches 0 in 2016.
- External funding for severance insurance would not be allowed after December 31, 2010.
- The tax deduction on severance income would drop from 45% to 40%.
- The maximum annual contribution to retirement pension schemes would rise from KRW3million to KRW4million (US$3,555).
These measures should take effect at the start of 2011.
In other news:
- The President is campaigning for a flexible working hours system to ease the unemployment figures. One aspect of this will be combating an entrenched long-hours culture.
- The Employment Ministry confirmed that the next phase in the introduction of the 40-hour work week will arrive in July 2011 with the system reaching enterprises of 5-20 workers.
- The Federation of Korean Trade Unions (FKTU) has launched a petition drive for raising the retirement age from 55 to 60. The Act on Aged Employment Promotion recommended retirement at age 60 in 1991, but many employers still require a premature retirement at 55. The FKTU aims to have the law take effect in 2013 and to offer incentives for early adoption during a 2011-12 transition period.
- Saeromaji Plan 2015, a "comprehensive" effort to counter the impact of an aging population with a low birthrate will introduce employer incentives for retaining pregnant women and new mothers. There are also measures to alter the childcare leave benefit and the day care reimbursement.
Sponsorship system to stay
ABC, Financial Times
The Labour Ministry has refuted the Labour Minister’s assertion that the kafeel sponsorship system will be eliminated in February 2011 (IH 10/06/10). The system will be reformed in the coming months to make it easier for foreign workers to switch employers, but the details have not been made public yet.
Private health insurance for foreign workers
AIR, Bernama, Malaysia Insider
The Ministry of Home Affairs is mulling a plan to make mandatory private health insurance part of the work permit application process for foreign workers. Compulsory coverage would curb the widespread problem of foreign workers being delinquent on their medical bills. The government sees employers footing the bill while the Malaysian Employers Federation maintains that workers should be fully responsible for the premiums.
Labour laws advance
The Transport and Industrial Relations Select Committee has issued reports concluding that the Employment Relations Amendment Bill (No 2) 196-2 (2010) and Holidays Amendment Bill (IH 09/01/10) are fit for passage with just minor adjustments. The opposition has accused the committee of weakening the language in provisions designed to ensure that an employee’s choice of cashing out on a week of annual leave or transferring a public holiday would be a voluntary and informed decision. Union access to a workplace would require employer consent, but the employer would be required to give a response within 24 hours.
Ruling on CPF seizure in a bankruptcy; New re-employment age threshold considered
CNA, Straits Times, Dow Jones
The High Court has ruled that a Central Provident Fund account bequeathed to a bankrupt person is fair game for seizure by the person’s creditors. The judge confirmed that one’s own CPF contributions are safe from creditors.
Also, officials are dropping broad hints about raising the retirement age beyond already scheduled increases. The retirement age, now 62, is set to rise to 65 in January 2012 within the context of the re-employment legislation (IH 09/22/10). The Manpower Minister recently suggested that a further rise to 67 is “not impossible” and the Minister in the Prime Minister’s Office said that the hike to 68 in Finland “gives us an indication about where we should be heading.”
Health system conversion postponed
Under the Law on Health Insurance, conversion of the public health system to a national health insurance scheme was to have started this year. The Health Ministry has cited the economic slump in its decision to delay implementation of the new system until 2014.
Backdown on early retirement
Following pushback on its plans for winding down the early retirement plans for hardship occupations (IH 11/04/10), the government has decided against it. Authorities have, however, secured trade union support for a plan that would temporarily divert these funds into the first pillar schemes and use them to pay the hardship early retirement benefits for 2011-2014. This plan still needs Parliament’s approval.
Guernsey pension taxation proposals; Jersey 2011 budget would raise social security contribution
Tax Analysts, IBFD
The Guernsey tax authority released the August document States Report; Amendments to income tax legislation relating for pension contributions and taxation of benefits arising from pension schemes on October 20. This working party report proposes a variety of enhancements to the tax regime for occupational pension schemes. The proposals cover lump-sum valuation, flexible retirement scenarios, trivial commutation and reviewing contribution limits in light of UK changes.
The 2011 Jersey Budget is most notable for a proposal to add a 2% social security levy for both employers and employees on all income above the social security cap (£44,232 in 2011). This is a compromise response to a green paper’s proposal to nearly triple the level of pensionable salary (IH 07/08/10). This levy would debut in January 2012. The administration will also conduct a study of the scope of income subject to social security contributions.
Trimming public health insurance coverage; Regional minimum wage proposal
The Health Minister will deliver a bill to Parliament this month proposing that compulsory health insurance be limited to a basic package of care and that individuals assume responsibility for any treatment not included in that package. It would also raise the daily copayment for hospital stays from 60 crowns to 100 crowns (US$5.40). Meanwhile, the Labour Minister plans to amend the draft Labour Code (IH 09/09/10) with a measure creating a new minimum wage system that would vary the pay threshold by region, factoring in the local cost of living.
Prime Minister’s address to Parliament; Pension developments
Tax Analyst, Esmerk, IPE
The Prime Minister outlined a 2010-11 legislative agenda in an address to Parliament:
- Under legislation due before Parliament in January, a company would have to report stock incentive schemes to tax authorities when the terms are first agreed on with an employee, rather than at exercise.
- A package of pension measures due this month will include provisions on changing the terms of an annuity pension and on transferring an annuity pension to another pension institute after payments have already started.
- People now on disability benefits would be re-evaluated in terms of prospects for rehabilitation.
- The flexi-jobs scheme would be refined so that high-income people do not take advantage of its wage subsidies.
Meanwhile, the pension industry supports a proposal to transfer workers’ “forgotten” pension holdings into the ATP public pension fund on their behalf to keep the funds secure. The pensions sector has also reached an agreement to waive transfer fees for pension schemes holding less than DKK46,000 (US$8,619.40).
Income Tax Act amendments passed
BNS, Tax Analysts, IBFD
The Riigkogu has approved Act on Amendments to the Income Tax Act and Associated Act (IH 03/31/10). Effective January 1, 2011, stock options will no longer be subject to fringe benefits tax at grant. Provided they are held for at least three years, the gain will be taxed as income at exercise.
Acquired rights ruling; Data protection consultation; Various
Responsible Investor, Agence Europe, IPE
In case C-242/09, the European Court of Justice confirmed the scope of the Acquired Rights Directive. A company purchasing another company to have the same workers perform the same tasks in the same location may not reduce their salaries or significantly worsen their working conditions.
Also, the European Commission announced the opening of a public consultation on its data protection rules. Advances in modern technology are among the factors contributing to an urgent need for revision of these rules. Workplace data issues and international data transfer are among the topics for investigation. An FAQ is provided. A new legal framework for data protection is scheduled for next year.
In other news:
- The 50 proposals outlined in Towards a Single Market Act: For a highly competitive social market economy include ensuring the right to take collective action. A corporate governance green paper will consider greater company disclosure on social, environmental and human rights matters. Proposals based on the pensions green paper (IH 07/08/10) are also in the pipeline.
- With the consultation on the pension reform green paper drawing to a close on November 15, there has been a spike in commentary on the need for greater harmonization of pension systems. The Employment Commissioner recently spoke of common standards for adequacy and sustainability while the head of CEIOPS (Committee of European Insurance and Occupational Pension Supervisors) has advocated a common financial framework for risks and liability.
- The European Parliament has adopted a resolution stating that women are disproportionately affected by precarious employment and calling for minimum employment rights for atypical workers.
- The European Commission has opened a consultation on further policy changes to regulate credit rating agencies and to curb overreliance on them. The consultation runs through January 7, 2011.
- The European Commission has closed and opened a number of infringement proceedings against member states in recent months. Highlights of the latter include formal requests to Sweden and the Czech Republic over pension tax discrimination, a formal request to the Czech Republic over gender equality rules, a notice to the UK over barriers to the free movement of workers, a reasoned opinion for Slovenia over anti-competitive rules in the complementary health insurance sector and a reminder to Spain to comply with a court ruling on preparation for industrial accidents.
Budget legislation; ECJ ruling on break time; President signs pension reform law
La Tribune, EIS, Le Figaro
French budget legislation (French only) features some proposals that merit tracking:
- The social levy applicable to profit sharing and those other types of income that are otherwise exempt from social contributions would rise from 4% to 6%.
- The “chapeau” executive pension scheme would be subject to an additional 14% social contribution and the tax reduction on employer contributions to these plans would end.
- The taxes at exercise for employee stock option (ESOs) would rise. The employee levy would jump from 2.5% to 8% while the 10% employee tax would go up to 14%.
These and several less consequential measures are aimed at defraying the cost of pension reform (IH 11/04/10).
Also, the European Court of Justice (ECJ) has ruled against France over a decree that exempted its holiday sector from certain provisions of the French Labour Code that transpose the EU Working Time Directive. Some holiday center staff members are denied entitlement to an 11-hour rest break in every 24-hour period during peak season. The court found that derogation for extreme circumstances did not apply in this case. Incidentally, the Constitutional Council dismissed the final challenge to the new pension reform law (IH 11/04/10) yesterday and the President signed it today.
Banking sector bonus caps
The Bundestag has approved a package (German only) of banking sector measures that would limit salaries and bonuses in banks receiving government support. Wages would be capped at €500,000 at companies that are getting assistance and those in which the government has a stake of at least 75% would not be allowed incentive compensation plans. Banks receiving a low level of support and those that reach certain benchmarks in paying the government back would have their restrictions eased. The legislation must still clear the upper house.
Pushback on fund diversion
Reuters, MTI, IPE
Thwarted in its attempt at a constitutional challenge to the temporary diversion of second-pillar contributions (IH 11/04/10), the Socialist Party will stage a referendum on the issue. Meanwhile, the pensions sector is mounting its own constitutional challenge to this maneuver. Already intent on trimming the Constitutional Court’s powers, the government will have a legislative response if the court rules against it.
Parliament approves Labour Law
In its final act before a no-confidence vote against the Prime Minister, Parliament passed a 10-year-old draft labour law revision (June 2010 synopsis here). The parental leave expansion to 12 months (IH 06/16/10) survived with the employer paying 70% of salary for the first six months, the government carrying the next three and the final three unpaid.
Other provisions will:
- Cap the probation period for new employees at six months
- Establish a 40-hour work week, 35 for workers below age 18
- Set a minimum 20 days paid annual leave with two extra days for single parents, mothers of young children and the disabled
- Require employers to pay 70% of salary for up to 10 days of sick leave per year
- Create a range of 20%-50% for various overtime premiums
The implementation date has not been set, but observers expect early spring 2011.
Reprieve on pension contribution increases; Proposed ban on commissions for financial advisers
Global Pensions, DutchNews.nl, IPE
The Social Affairs Minister announced (Dutch only) an agreement with the central bank (DNB) to postpone the requirement that underfunded pension funds raise contributions in 2012. A pension fund would have to apply for the exemption by the end of this year and would qualify only after presenting a “suitable” financial recovery plan for 2012. Also, the Finance Ministry plans to bar banks and insurance companies from paying financial advisers commissions for a wide range of financial products including pensions and life insurance. Consumers should pay the advisers directly for these products to ensure that there is no conflict of interest over which products are marketed to them.
Parliament has approved in first reading Portugal's 2011 draft Budget law (Portuguese only). It confirms that most of the deferred social security contribution code (IH 12/23/09) will come into effect on January 1, 2011. There is also a provision that sharpens the curb on tax relief for high pensions, raising the 13% cut in the €6,000 deduction on income over €30,240 to a 20% cut in the deduction for income over €22,500.
Employers draft labor code revisions
Moscow Times, Russia IC, Pravda
The Russian Union of Industrialists and Entrepreneurs has published a set of draft labor code amendments for tripartite consideration. There has been predominantly negative press for a set of measures that would:
- Allow a 60-hour work week without overtime premiums
- Make fixed term contracts the default for employees who are new to the workforce and for those over age 60 who have a right to a full pension
- Halve the dismissal notice period to one month
- Limit paid education leaves to those workers who have negotiated a job-related course of study with the employer
Tripartite Committee prepares Labour Code revisions
SITA, TASR, Slovak Spectator
A fractious tripartite committee is attempting to conclude a major set of Labour Code amendments by mid-November. The debate is not supposed to be going on in public, but several proposals have reached the press:
- One measure would transpose the EU rule on a worker returning to his/her former position after a parental leave break.
- The new employee probation period would be longer and the dismissal notice period would be shorter.
- Flexibility, particularly for working hours, is a key goal of this exercise.
- An “interim market” would help the long-term unemployed return to the workforce by continuing some level of benefits until they are fully transitioned.
Delay for pension reform legislation
El Pais, Global Pensions, WSJ
The Labor Minister said that the administration has revised its timetable for introducing pension reform legislation by the end of this year (IH 09/15/10). Parliament’s pension committee will compile a set of possible changes by the end of December and the administration will consult with other parties before drafting the bill.
24-week parental leave
Soon after the defeat of a less ambitious parental leave extension in the National Council (IH 06/23/10), the Federal Coordinating Committee for Family Affairs (COFF) has made a pitch for parents sharing 24 weeks of paid parental leave in addition to the existing 14-week maternity leave entitlement. One possible funding source would be a dedicated increase in the value-added tax (VAT).
Retirement age hike for women abandoned
Prime-Tass, UNN, Dow Jones
The government, after issuing corrections to the press coverage of its plan to raise the retirement age (IH 08/18/10), in one phase for women then for both sexes, has announced plans to shelve retirement age increases and pursue alternative belt-tightening measures – at least in the short term.
Pension age hike acceleration; Various
The Times, Tax Analysts, Daily Mail
The Chancellor’s Spending Review statement addressed the government’s response to the consultation When should the state pension age increase to 66? The administration has concluded that the state pension age must rise from 65 to 66 between 2018 and 2020. This would entail compressing the transition – already underway – for women from pension age 60 to 65.
In other news:
- With bonus season approaching, the Financial Services Authority has conceded that its revised remuneration code (the consultation closed last month) will not be published before mid-December. The code will still come into effect on January 1, 2011, and firms newly brought under the code will have until July 1 to come into compliance. There is a new FSA consultation on remuneration disclosure requirements. Annual reporting on pay policy would start by January 1, 2012. The consultation is open until December 8, 2010.
- HM Revenue & Customs Brief 44/10, Change in the tax treatment of business entertainment of overseas customers, heralds legislation that will bring the UK into compliance with a European Court of Justice judgment on value-added tax (VAT) recovery for business entertainment of overseas customers. The brief provides transitional guidance on which business expenses would qualify for VAT recovery.
- The 2011 Finance Bill due for publication by the end of this year will target tax avoidance schemes designed to get around new limits on annual pension contributions. Of particular interest to authorities are employer-financed retirement benefit schemes (EFRBS).
Pension surplus ruling; Liberal Party pension reform plan
Montreal Gazette, Vancouver Sun, DBP
The Supreme Court has issued another key ruling on employee entitlement to a pension surplus. In this case, the company had sold off a division, making adequate provisions for the pension benefits of affected workers. When the sale was concluded, the parent company's pension scheme was determined to be in surplus and the transferred workers claimed a right to part of that surplus. The court rejected the claim, noting that a fiduciary duty of evenhandedness does not require that past members of a defined benefit plan receive equal treatment.
Also, the main opposition Liberal Party has drafted a white paper on retirement income security that has leaked to the press. The paper recommends a voluntary supplemental pension scheme and has drawn flak for not supporting the popular CPP (Canadian Pension Plan) expansion approach (IH 09/22/10). The Liberal Party caucus has not yet voted on whether to include this package of proposals in its election platform.
Consultation on corporate governance rules; Expiration date for unemployment extension
Trade news, Washington Post, Fed news
The Securities and Exchange Commission (SEC) has issued proposed rules on key corporate governance provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These include:
- Granting shareholders advisory votes on executive compensation and golden parachutes
- Requiring expanded disclosure of golden parachute arrangements in golden parachute proxy statements
- Obliging institutional investment managers to file reports on their remuneration votes with the SEC
A consultation on the draft rules will close on November 18.
Also, the National Employment Law Project (NELP) reports that 2 million Americans will lose their unemployment benefits over the coming holiday season if Congress misses the November 30 deadline for another benefit extension. Legislators – many firmly committed to cutting both the deficit and taxes – will reconvene on November 15 for the few remaining November days in session.
Profit-sharing bill debate suspended
BAH, Merco Press, NASDAQ
The mandatory profit-sharing bill (IH 09/29/10) has now reached Congress, but its path to passage is uncertain. The Labour Committee’s debate on the bill was suspended because key social partner representatives were not in attendance. The committee will now invite the major unions and employer federations to provide feedback separately. If the social partners do not find common ground, the model of a tripartite council for implementing profit-sharing regulations may be unworkable.
Ruling on pre-existing conditions
Last month, the High Court STJ ruled against an insurer that sold a life and personal accident policy to a person and then denied claims, citing the customer’s glaucoma as a pre-existing condition. Another recent STJ ruling rejected an insurer’s claim that late payment of a premium was grounds for voiding an insurance contract.
Foreign investment cap to rise
WSJ, Global Pensions
The Central Bank has announced (Spanish only) a gradual rise in the foreign investment limit for private pension plans. The limit will climb from 60% to 80% at a rate of 5% per quarter from December 1, 2010, through September 1, 2011.
Personal income tax postponed
The new Personal Income Tax managed to be set aside soon after its introduction at the start of this year (IH 02/18/10). Congress has now passed a measure deferring its return until fiscal year 2013.
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