Session 55 PD, Pension Funding Rules—An International Comparison
Moderator:
Douglas J. Carey, FSA, EA, FCA, MAAA
Presenters:
Jason Michael Gratson, ASA, EA, FCA, MAAA
Mahasen S. Kunapuli, FSA, EA, FCA
Pension Funding Rules—An
International Comparison
October 27, 2014
3:30 – 4:45
Agenda:
•
United States
•
United Kingdom
•
Netherlands
•
Switzerland
•
Germany
•
India
•
Hong Kong
•
Japan
Structure of US DB Pension Plan
Employer contributions
• Usually only the employer contributes, although employees contribute in some plans. • The employer contribution is determined following actuarial funding valuation, which must happen annually. • Plan benefits are protected by law and cannot be eliminated or reduced. As such the employer bears the full financial risk of the plan. • The IRS mandates the funding method (unit credit), interest rate options, asset smoothing methods and mortality to be used in funding valuations. • Interest rate options are based on high quality US corporate bonds and include the following: • A full yield curve option with no smoothing • A segment rate option that approximates a full yield curve and includes 24 month smoothing • Current funding relief has limited the segment rates to a 90%‐110% corridor around the 25 year average until 2017, which widens to a 70%‐130% corridor by 2021. • A poorly funded plan can result in benefit restrictions and accrual freezes. Annual Required Contribution = Normal Cost + Plan Expenses + 7 Year Amortization of Unfunded Liability (new base set up each year)US Funding Timeline
Since the enactment of PPA in 2008, plan sponsors have generally been given access to funding relief: • PPA transition rules to use lower liability to calculate your unfunded (2008‐2010) • PRA 2010 to use up to 15 year amortization unfunded (2008‐2011) • MAP‐21 to use 25 year average interest rates rather than market rates (2012 and later) • HATFA to reset the MAP‐21 corridor and use higher interest rates (2013 and later)ERISA OBRA RPA EGTRRA PPA
MAP21 HATFA PRA
The Changing Finances of US Pensions
Significant increases in PPA and GAAP liabilities due to expected mandatory increases in mortality standards are closing the gap between ongoing and plan termination costs. When coupled with drastically increasing administrative costs, including PBGC premiums, the termination cost and economic cost quickly converge. 2006 2012 2013 2014 2015 2016 Flat Rate $19 $35 $42 $49 $57 $64 Variable Rate per $9 $9 $9 $14 $24 or more $29 or morePBGC Premium Increases
Accounting/ Funding Liability 100% Estimated Termination Liability 115%‐ 120% Termination “Premium”Traditional Cost to Terminate
Revised Cost to Terminate
Economic Liability 110%‐ 115%+ Estimated Termination Liability 115%‐ 120% Termination “Premium” PBGC premiums will have more than tripled over the past 10 years. While fully funded plans avoid the variable rate premium, flat rate premiums will remain in force.US Funding Summary
Advantages • Mandated assumptions provide little room for discretion and can help to protect participant benefits and the PBGC’s interests • The baseline funding “formula” is straight forward and easy to understand: • Contribution = Normal Cost + Expenses + 7 Year Amortization of Unfunded • Funding Relief has historically been provided after poor experience • Valuations completed annually, allowing new experience to be reflected quickly • Poorly funded plans automatically freeze or restrict certain benefit forms (lump sums) to protect participant benefits Disadvantages • Does not reflect the financial strength of the plan sponsor • Funding relief negates the protections participants receive, while also providing longer term uncertainty for plan sponsors • Interest rate smoothing can make immunization difficult • Not many options for plan sponsors who fall behind and are poorly funded.Structure of UK DB Pension Schemes
Employer contributions
• Usually both the employer and the employee contribute. • The employer contribution rate is determined following actuarial funding valuation carried out by the trustees, which must happen at least every three years. • Employer contributions will consist of regular contributions if the Scheme is open to accrual plus extra contributions to repair any deficit in the scheme. • The Scheme Actuary calculates the employer contribution rate based on long‐term assumptions for interest rate, inflation rate, salary increases, mortality etc. • The Pensions Act 2004 introduced the Statutory Funding Obligation (SFO) to replace the previous Minimum Funding Requirements (MFR). • For most schemes the SFO requires the trustees and Company to negotiate the future contribution level. • For most schemes, the trustees and Company must also come to an agreement over the assumptions to be used for the full actuarial valuation. • The trustees and employer have 15 months from the effective date of the valuation to reach an agreement on future contributions. If agreement cannot be reached in this timescale, the Pensions Regulator has the power to intervene and impose a contribution schedule on the employer.Pension Scheme Funding
Different measures of liabilities
• The purchase of an insurance policy for all pension scheme members in lieu of benefits from the scheme. • Liabilities valued on a buy‐out basis are usually much higher than technical provisions due to several factors including needing to assure very low investment risk for the policies it is taking on. Buy‐Out • This is the value of the scheme’s liabilities using a set of assumptions prescribed by the Pension Protection Fund. This value is used as part of the calculation of the scheme’s PPF levy. Section 179 liability/ PPF liability • The value of the liabilities on a funding basis, these are calculated at each triennial valuation, using assumptions and methods determined by the trustees and employer on actuarial advice. Technical Provisions • The value of the liabilities on an accounting basis (i.e. to go into the scheme’s sponsor’s corporate accounts). Projected Benefit Obligation • This is the value assigned to the liability relating to an individual or group of individuals Transfer valueFunding Valuation
Valuation strategy
Understand employer covenant position & changes since last valuation Understand current position using assumptions from last valuation Establish negotiation strategy Consider approach to funding (cash, non‐cash assets, contingent assets) Consider length and nature of recovery plan Review key actuarial assumptions and establish areas for negotiationFunding Valuation
Best estimate vs. prudent basis
• All parties should understand the degree of prudence included in the technical provisions basis. • Average pension scheme • 80% funding level under technical provisions basis • Discount rate used for technical provisions: gilts + 1% • Asset allocation: 50% “growth” assets/ 50% “matching” assets • Best estimate long‐term return on assets: gilts + c. 2%Assets Liabilities Deficit
Financial position under agreed technical
provisions basis 100 125 (25)
Assets Liabilities Deficit
Financial position under best estimate basis
Funding Valuation
What is the employer covenant?
• Focus on which entities are Scheme employers – cannot assume it is appropriate to take into account the strength of the wider group • Future more important than the past • Link to investment risk • Trustees often commission an external covenant review. The employer may find that: • providing information for the review takes up management time; and • the initial results are not necessarily in line with the employer’s view. • tPR is consulting a new code of practice. Therefore the definition above may be revised.“an employer’s legal obligation and its ability to fund the scheme now and in the
future”
Pensions Regulator’s guidance on monitoring employer support issued in November 2010Funding Valuation
Illustrative impact of employer covenant on funding assumptions
0 20 40 60 80 100 120 140 160 180None Weak Tending to weak Tending to strong Strong
£m Discount rate: gilts plus 0.5% Discount rate: gilts plus 1.0% Discount rate: gilts Discount rate: gilts plus 1.5% Discount rate: gilts plus 2.0% Illustrative affect of covenant strength on discount rate assumption and funding position
Employer Covenant
Funding Valuation
Asset out‐performance in recovery plans
Assets Liabilities - No outperformance
0.5% out - performance 1.0% out - performance 1.5% out - performance 2.0% out -performance 20 40 60 80 100 120 140 160 £m
Effect of outperformance on example contribution requirements
Funding Valuation
Contingent Assets
• Alternative funding tools are now more common. • Employers are looking to protect against overfunding and be more cash‐efficient. • Almost 1,000 schemes now have some form of contingent asset. Source: Pension Protection Fund 0 100 200 300 400 500 600 700 800 900 1000 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 Number of contingent assets in place Levy Year Type A (Group/Parent guarantees) Type B (Security over assets) Type C (Bank guarantees)UK Funding Summary
Advantages • Negotiation can provide flexibility • Non‐cash contributions can provide additional flexibility around contributions • Reflects the financial strength of the plan sponsor • Prudence standards work to protect participant benefits. Disadvantages • Negotiation is a long process. Can be viewed as burdensome. • Prudence standards can result in overly conservative measure of liability • Negotiation process can produce a wide range of liabilities as assumptions can vary significantly • Valuations not completed annually, experience may not be reflected quicklyStructure of Netherlands DB Pension Plans
• Netherlands has 3 types of pension funds • Industry (mandatory for all companies in a given industry) • Company (optional if a company wants to provide benefits above the industry plan) • Occupational (organized for specific groups of professionals, like physicians) • Over 90% of employees participate in a plan • By law, they must hold sufficient assets to cover 105 per cent of promised benefits • In addition, they have no leeway in setting the parameters that determine estimates of liabilities, such as expected investment returns or mortality • Benefits are paid as an inflation indexed annuity. Lump sums are generally not allowed. • Benefit indexation is contingent upon plan solvency (not purely DB) • Active participants have their career average indexation at risk • Inactive participants have their annual COLA indexation at risk • The pension funds are independent financial institutions, completely separate from the employer. • Surveys show most Dutch prefer collective risk sharing plans over individual DC arrangements.Comparison of Funding Patterns
80 85 90 95 100 105 2014 2015 2016 2017 2018 2019 2020Employer Bears Full Risk
Assets Liabilities • Under the risk sharing approach, as the assets incur a loss and funded status deteriorates, the liabilities can be slowly decreased • As a result, the plan returns to fully funded (100% funded) quicker, with less cash contributions necessary from the sponsor • The participant however bears some of the risk • The participant can earn back some of their lost benefits, but it will take longer to return to a fully restored and fully funded plan due to lower cash requirements from the plan sponsor 80 85 90 95 100 105 2014 2015 2016 2017 2018 2019 2020Risk Sharing Approach
Assets LiabilitiesNetherlands Funding Summary
Advantages • A shared risk approach that provides flexibility for the employer • Lump sums are generally not allowed, providing for greater income security during retirement • The industry pension fund approach along with the government’s preference for employer provided plans gives over 90% of employees access to a Tier II benefit. • Hybrid approach produces a lower probability of underfunding than either a pure DB or collective DC approach, as underfunding can be reclaimed through employer contributions or lower benefit indexing. • Participants can reclaim lost benefit indexing if future asset returns cause the plan to be overfunded. Disadvantages • The participant’s benefits are at risk • There is still volatility in employer contributions • Communications and legal concerns can make lowering benefit indexing difficult • Many participants have received little or no indexation for yearsSome facts about Switzerland
Population : 8.2 mio (24% of foreign residents)
Superficies : 41’000 km
2(about 30% of Florida)
GDP (2013) : USD 650 bn
per capita: > USD 80’000
Pension assets / GDP : about 130%‐140%
Inflation : none
Unemployment : 3% (09/2014)
4 official languages (70% German, 20% French, 5% Italian)
Bi‐cameral parliament with a strong direct democracy
Overview of Swiss social security
The three‐pillar system Protection in case of occupational and non‐occupational illnesses and accidents Income compensation allowances in case of military service and maternity Unemployment insurance Family allowancesThe three-pillar system
The third
pillar consists
of voluntary private
individual insurance.
The second pillar is the
occupational benefit plan. It is
compulsory for all the employees and
aims to cover 60% of the previous
earnings with the 1
stpillar (Art. 113 FCSC)
The first pillar – old age, survivors’ and invalidity insurance –
is a public compulsory PAYGO insurance for everyone. Its aim
is to cover basic living costs. (art. 111 and 112 of the Federal
Constitution of the Swiss Confederation ‐ FCSC )
Swiss occupational
insurance is based on the
so‐called
three‐pillar
system
, a threefold
system of public,
occupational and
private insurance.
The three-pillar system
Types of benefits
Retirement
Retirement
pension and/or
lump sum
Retiree’s child
pension
Disability
Disability
pension
Disabled
person’s child
pension
Death
Surviving spouse
pension and/or
lump sum
Orphan pension
Swiss legal system
Federal
Constitution
• Establishes the Swiss Confederation as a federal republic of 26 cantons (states) • Contains a catalogue of individual and popular rights (including the right to call for popular referenda on federal laws and constitutional amendments) • Delineates the responsibilities of the cantons and the Confederation and establishes the federal authorities of government.Swiss laws
• Established by the Swiss ParliamentSwiss
ordinances
• Established by the Swiss Federal Council • Established when the Parliament delegates the competence to the Swiss Federal Council to precise certain aspect of a LawOccupational pension funds
Mandatory benefits defined by the
law on occupational pension funds
Pension funds are free to offer
supplementary benefits
Maximum salary of CHF 842’400
Maximum total contribution of
25% of the salary (employer and
employee)
Measures to limit tax
optimization
Benefits
Statutory
minimum
benefits
Retirement
Retirement pension calculated with the legal retirement credits and conversion rate Retiree’s child pension = 20% of the retirement pension until 18/25Disability
Disability pension = projected retirement pension Disabled person’s child pension = 20% of the disability pension until 18/25Death
Surviving spouse pension = 60% of the beneficiary’s pension Orphan pension = 20% of the beneficiary’s pensionStatutory minimum benefits
• 18 – 24 0% • 25 – 34 7% • 35 – 44 10% • 45 – 54 15% • 55 – 64/65 18% • Employer pays at least 50% of the total contributions. Retirement credits are accrued on a retirement savings account. • Defined every year by the Swiss Federal Council. • Equal to 1.75% for 2014. The minimum interest rate is credited every year on the retirement savings account. • Defined by the law. • Equal to 6.8% at legal retirement ages 65 (men) and 64 (women). • 25% (at least) of the retirement savings can be taken in lump sum. Total retirement savings are converted into an annuity using the conversion rate.The law on occupational pension funds (BVG/LPP) defines the
statutory minimum benefits to be fulfilled by all pensions funds.
Governance
•
The pension fund (a foundation in the sense of the Swiss
Civil Code) is legally separated from the employer. The fund
and the company are legally two different entities.
•
All contributions are tax‐deductible. However, when the
money is poured into the fund, it could never flow back to
the employer !
•
The fund managing body is a Board of trustees (half of
employees’ and employer’s representatives).
Representatives are not professionals (milice system) and
the level of remuneration usually is very low !
•
The trustees, the auditor and the pension actuary are called
“organs” of the fund and have therefore a special
Discount rate
The following definition is given by a technical guideline by
the Swiss Chamber of Pension Actuaries
The technical interest rate (=discount rate)
of reference is a weighted average,
determined by 2/3 using the average
performance of the past 20
years of an index (composed of 25% of
equities and 75% of bonds) and by 1/3
using the current yield on 10‐year Swiss
government bonds.
Evolution of the (past) technical
interest rate of reference
Discount rate
2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Evolution of the future technical interest rate of reference
between 2015 and 2024
Average discount rate
Private
pension
funds
2012:
3,22%
2013:
3,05%
Public
pension
funds
2012:
3,56%
2013:
3,34%
Structure of Swiss Pension Funds
The pension funds are independent financial institutions, completely
separate from the employer.
By law, they must hold sufficient assets to cover 100% of promised benefits.
Benefits are normally paid as an annuity. Inflation indexation is not
compulsory. Lump sums are generally allowed (but usually, somehow
restricted) and becoming always more popular.
Usually both the employer and the employee contribute. The contribution
rate is determined in the plan regulation.
Private Pension Funds are mainly «cash balance plans», as traditional DB
plans remain popular by Public Pension Funds (mainly in French speaking
area).
For the salary part over CHF 126’000, possibility of so called “1e plans”, that
are individual saving accounts with individual asset allocation, that are
considered as pure DC.
About 15%‐20% of insured population covered by direct insurance.
Funding main differences
Swiss funding
• Considered in a pension fund
distinct from the employer
• Estimated with a flat discount
rate (not risk free)
• No salary raises taken into
account for active participants
• No COLA taken into account for
pension beneficiaries
FAS 157 funding
• Considered in the balance
sheet of the employer
• Estimated with a risk free
discount rate or with the
interest rate swap curve
• Salary raises taken into
account for active participants
• COLA taken into account for
pension beneficiaries
Private pension funds
Private pension plans must be fully‐funded because private employers are not perennial. Pension funds in Switzerland are a separate entity from the company. Life expectancy at 65 years‐old of 18.93 for men. Discount rate = 3% (real rate) Average degree of coverage of private pension funds : 110.8% (end of 2013) Actuarial tables elaborated on statistics of both private and public sector. Consolidation measures to raise the funding ratio to 100% in the case of under‐ funding. Savings amounts are thus preserved in case of bankruptcy of the employer. Life expectancy at 65 years‐old of 21.42 for women. 93% of all private pension funds have a degree of coverage > 100%. (end of 2013)Private pension funds
85.00% 90.00% 95.00% 100.00% 105.00% 110.00% 115.00% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Evolution of the (averge) legal funding ratio between 2004
and 2013
Public pension funds
Role: Insure the
personnel of the
Cantons (State
equivalent) and
municipalities.
The perennity of
the Cantons and
municipalities
implies the non‐
necessity of a
full‐funding.
Public funds must
reach a degree of
coverage of at
least 80% in 2052
(new legal
regulations).
Use of actuarial
tables elaborated
on statistics of
the public sector
(higher life
expectancy).
Occupational Employee Benefits
Labor Law
Major modifications of the “Betriebsrentengesetz” (Pension Law) from
1974 were made 2001 by the so-called “Altersvermögensgesetz”
(Retirement Property Act) and in 2005 by the “Alterseinkünftegesetz
(Retirement Income Act).
The pension reforms of 2001 and 2005 introduced a transition from up
front to downstream taxation of social security and employee benefits.
Until 2005
Taxation of Contributions (up front taxation)
After 2005
Taxation of Benefits (downstream taxation)
Tax advantages limited to pension plans that offer a
life-long annuity
Most important features of the “Betriebsrentengesetz”
Vesting
Employer financed plans
Employees aged 25 and older have a legal
vesting after 5 years of pension promise.
Salary conversion plans
Salary conversion plans are immediately
vested. The vested amount equals the
entitlement reached until the date of leaving
service based on the contributions paid up
so far.
Pension Guarantee Fund
Compulsory coverage of vested benefits
against employer’s insolvency.
Flexible Retirement Age
If an employee draws the early retirement
pension available under the State pension
program as a full pension, the employee
benefit plan must also provide an early
retirement pension.
COLA
The law requires a regular review and an
adjustment of the amount of pensions in
payment. Every three years, the employer
must review the amount of the current
pensions and decide how to adjust them
(usually according price inflation).
Salary Conversion
Since 2001 it is mandatory due to the
German pension law to offer the
The
Direct Pension Promise
is a formal and legally binding promise to his
employees. The amount of benefits is not limited by tax regulations. The
funding is internal by book reserve. The Direct Pension Promise is liable
for contributions to the Pension Guarantee Fund.
The
Direct Insurance
is an outside funding tool. The main features of
Direct Insurance are that the employer as policyholder is only obliged to
pay the premiums and the employee has a direct claim towards the
insurer. Contributions to Direct Insurance are free of income tax for the
employee up to 4% of the social security contribution ceiling (EUR 66,000
in 2010).
The
Retirement Fund
(Pensionskasse) is an institution set up by the
employer but legally independent. In the last years, many insurance
companies have set up a Retirement Fund to offer an additional outside
funding tool for company pension schemes. In most aspects – especially
tax regulations - the Retirement Fund is treated like a Direct Insurance.
The
Support Fund
(Unterstützungskasse) is an institution established by
one or more employers. Restrictions imposed upon a classical support
fund are tax-related, limiting the amount of employers’ contributions and
total fund accrual.
The
Reinsured Support Fund
, often set up by insurance companies, can
be set up in a way that no further obligation beyond the defined
contribution will remain to the employer. Tax-exempt contributions to a
reinsured support fund are not limited like they are to Direct Insurance or
Retirement Fund. No impact on the employer’s balance sheet if the
support fund is reinsured. The Support Fund is liable for contributions to
the Pension Guarantee Fund.
The
Pension Fund
(Pensionsfonds) started in 2002 as a new funding
method in Germany. Pensionsfonds act like life insurance companies with
more liberal investment regulations. Tax regulations are similar to Direct
Insurance. The Pension Fund is liable for contributions to the Pension
Guarantee Fund.
It is common in Germany to offer a company financed occupational
pension scheme besides the statutory social insurance plan.
A company sponsored occupational pension scheme is an essential
element of a competitive total reward package.
Government programs are challenged to meet their obligations due to
aging population trends.
About 46% of the employees of German private industry are provided with
an occupational pension scheme (Source: Survey TNS Infratest
Sozialforschung – 2004).
29% with contribution only from the employee
41% with contribution from employer and employee
38% with contribution only from the employer
Pension promises in Germany are historically defined benefit plans.
With the pension reform in 2001, the renewed German pension law
introduced the contribution oriented defined benefit plan, working like a
defined contribution plan with the employer guaranteeing a minimum
benefit of the sum of contributions.
Defined benefit plans are usually related to salary and years of
service, with higher accrual rates on salary above the social security
contribution ceiling. Besides retirement pension a spouse’s pension of
60% and a disability pension in case of occupational or total disability is
usually provided.
During the last years, new pension schemes were mostly set up as
defined contribution based plans and many existing defined benefit
plans were transformed into defined contribution based plans for the
future service.
Pension benefits in form of a life-long annuity, that can be combined
with a disability pension, widow’s/widower’s pension, orphan’s pension
Endowment policies and term-life insurance loose in significance
The average employer contribution amounts to approximately 2-4% of
salary
External funding methods (direct insurance, retirement- and support
fund) are favoured due to limited liability risk and administration tasks
for the employer
Direct Insurance and Retirement Fund offer a very valuable reduction
in vesting regulations, a transfer of policy ownership from the employer
to the former employee is possible, leaving the employer without any
further obligations.
The Benefits Structure
India Retirement Benefit Plans Statutorily Mandatory Gratuity(DB) Employee’s Provident Fund (DC) Voluntary Leave Encashment(DB) Post Retirement Medical New Pension System(DC)Benefits – The historical context
1923 : Workmen’s Compensation Act
1948 : Employees’ State Insurance Act for provision of healthcare and cash benefit payments during sickness, maternity and employment injury
1952 : Employees’ Provident Fund Act introducing mandatory DC 1972 : Gratuity Act introducing mandatory DB provision
1990 : Deregulation of Indian Economy
1995 : Employee Pension Scheme as a DB Social Insurance Scheme 2001 : Supplementary pension plans with opening of Insurance Sector 2003 : Introduction of PFRDA
2005: Introduction of the Fringe Benefit Tax 2009: Launch of the New Pension System (NPS)
Gratuity (DB)
Eligibility
• Statutory requirement for
employers employing 10 or more employees
• Applicable to all permanent employees irrespective of category or salary
Payable in the event of
• Employee's superannuation • Employee's early retirement or
resignation
• Death or disablement due to accident or disease Payment under the Gratuity Act, 1972 Gratuity – 15 / 26 times Service times Monthly Wages; Benefit is capped at INR 1,000,000 Vesting Period: Typically Five Years Gratuity benefits higher than the statutory limit are provided at employer’s discretion. Benefits in excess of the limit are taxable
Employees Provident Fund (DC)
#
Type
Description
1 Coverage Organizations employing 20 or more employees with basic salary INR 15,000 (USD 250 approx) per month or less
2 Benefit type With RPFC - Defined Contribution type Exempted or Excluded Trust–Defined Benefit
3 Employer contribution Normally 12% 4 Employee contribution Normally 12% 5 Funding Mandatory
6 Benefit
Arranged under three schemes:
• Employees’ Provident Fund Scheme,1952 • Employees’ Pension Scheme, 1995
• Employees’ Deposit Linked Insurance Scheme, 1976 7 Employee Taxation Benefit is fully tax exempt
Other Voluntary Benefits
• Convert unutilized leave into cash
• Quite often employers permit encashment upto 60-90 days
Leave Encashment
Benefit
Post Retirement
Medical Benefit
New Pension
System
• Post-retirement medical benefit is given in form of reimbursement
of Domiciliary expenses and hospitalization expenses
• This benefit is very rarely given by the employers
• Pension Fund Regulatory & Development Authority (PFRDA) has
extended New Pension System (NPS) to all the citizens on 1 May 2009, with access to following two accounts:
• Tier-I pension account: The subscriber will contribute his/her
savings for retirement into this non-withdrawable account.
• Tier-II savings account: This is simply a voluntary savings facility.
Establishing and Funding
Retirement Benefit
• No Statutory obligations to create
fund
• Can setup Trust fund or segregate money or accounting provision
• Approval of income tax authorities
are required for trust fund
Gratuity Benefit
Scheme
Employees’
Provident Fund
Scheme (PF)
• Employer pays contributions into
the Government Fund which is administered and managed by EPFO
• The Employer seeks exemption
from the EPFO from joining EPFO Fund, sets up his own Trust Fund and manages and administers the fund
The Benefits Structure
2 sections Hong Kong Retirement Benefit Plans Long Service Payment (DB) Mandatory Provident Fund (DC)Employer Sponsored
Retirement Benefit
Establishing and Funding
Retirement Benefit
Employer Sponsored Retirement
Benefit
• Super Annuation
• Early retirement or resignation
• Death or disability due to accident or disease Benefit Payable Occasions
Form of payment: Lump Sum | Benefit: Multiple times scheme salary time’s service, schemes
Retirement Age 60 years (Male and Female)
Payable By Employer to
permanent full time employees
Long Service Payment
• Retirement Age 65 years
• Employer & Employee 5% contribution mandatory subject to income levels • Voluntary contribution possible
• Vesting is Immediate for mandatory contribution • Benefit payable Lump sum
Establishing and Funding
Retirement Benefit
• Typically trust arrangements which
are master trust funds.
• Valuation (every three years ) if the
scheme is solvent on a voluntary
• Leaving service benefit basis • Else Annual valuations are
required
Long Service
Payment
Mandatory
Provident Fund
Typically trust arrangements are made, majority of which are master trust funds
The Benefits Structure
2 sectionsEmployer Sponsored
Retirement Benefit
Establishing and Funding
Retirement Benefit
Japan Retirement Benefit Plans National Pension (DB) Employees’ Pension Insurance(DB).Employer Sponsored Retirement
Benefit
• Super Annuation
• Early retirement or resignation
• Death or disability due to accident or disease Benefit Payable Occasions
Form of payment: Lump Sum, Annuity or combination of both
Vesting Condition: Voluntary retirement 3 years, Involuntary retirement 1 year
Retirement Age 60 years (Male and Female)
Payable By
Employer to regular employees
National Pension & Employees Pension Insurance
• Funding levels in DB plans continue to remain low by international standards • Internal Financing
o Book Reserve
o Tax-qualified pension plans(TQPP/New DB)
o Employees' Pension Funds (EPF) as external financing • As per the market practice approximately 49% plans are funded