By Weon Jung Kim, Hyun Jae Park
An amendment to the Employee Retirement Benefits Security Act (the "Act") was promulgated on July 25, 2011 and is scheduled to take effect on July 26, 2012. The following is a brief summary of the key provisions of the amendment.
- Retirement Pension System: Pursuant to Article 5 of the Employee Retirement Benefits Security Act, as amended, companies that are newly established after the amendment becomes effective must set up a retirement pension system within one year from its establishment date. During the implementation of the retirement pension system, companies are required to seek input from, and coordinate with, the employees' representative(s). Companies that are newly formed by way of a merger or spin off are exempted from this requirement.
- Flexibility in Designing the Retirement Benefits Plan: Currently, pursuant to Article 6 of the Employee Retirement Benefits Security Act, employees can choose between a defined benefits plan and a defined contribution plan. Under the defined benefits plan, the level of retirement income is determined at the outset of the retirement, whereas the level of retirement income under the defined contribution plan is determined based on the employees' contribution and performance of the investments made with such contribution. The amendment is designed to provide employees with additional choices of retirement plans by enabling them to choose both defined benefits plan and defined contribution plan.
- Interim Severance Payment: Pursuant to Article 8, Clause 2 of the Employee Retirement Benefits Security Act, employers can provide interim severance payment upon employees' request, which enabled some employees to use their severance payment for purposes other than their retirement plan. The proposed amendment stipulates that employers may not provide interim severance payments unless certain conditions prescribed in the Presidential Decree have been satisfied (e.g., when an employee seeks to purchase his/her home).
- Enhancing Funding Abilities of Defined Benefits Plans: The proposed amendment requires pension fund trustees to inform the respective employers within six months from the end of each fiscal year whether the balance of their pension funds at the end of a given fiscal year exceeds the minimum threshold level. In case the pension funds' balance at the end of a given fiscal year falls below the minimum threshold level, the retirement pension trustees must notify the employees' representative(s), and the employers will be held financially responsible for the difference between the pension fund balance at the end of the fiscal year and the minimum threshold balance amount.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.