All Workplaces to Fund Retirement Benefits at External Financial Institutions
Phased Implementation in Consideration of the Burden on Small and Micro-Sized Enterprises
Introduction of Fund-Type Retirement Pensions Managed by Professional Trustees
Going forward, retirement benefits that office workers receive will no longer be accumulated inside their companies, but will instead be funded and managed at external financial institutions such as banks and securities firms. In addition, alongside the current contract-type retirement pension system, a fund-type scheme, in which a professional institution pools and manages the contributions of multiple participants, will be introduced in parallel.
On February 5, the Ministry of Employment and Labor announced that labor, management, and government had agreed on this direction for institutional reform through a joint declaration of the “Task Force (TF) to Strengthen the Functions of Retirement Pensions.” This is the first time in about 20 years since the system was introduced in 2005 that labor and management have issued an official joint declaration on improving the retirement pension system.
The core of this agreement is that it clearly establishes the principle of external funding of retirement benefits. Currently, in-house reserves and retirement pension reserves coexist, leading to recurring problems of delayed payment and underfunding. The task force agreed that all workplaces will be required to fund retirement benefits at external financial institutions, while implementing this requirement in stages in consideration of the burden on small and micro-sized enterprises.
Kwon Changjun, Vice Minister of Employment and Labor, is presiding over the first tripartite task force meeting to strengthen retirement pension functions at the Seoul Regional Employment and Labor Office on October 28 last year. Ministry of Employment and Labor.
The way retirement pensions are managed will also change. The task force agreed to introduce a fund-type retirement pension scheme into defined contribution (DC) plans, in addition to the existing contract-type retirement pensions whose assets are dispersed by workplace. In a fund-type scheme, a professional trustee pools and manages the contributions of many participants, which is expected to improve management efficiency and returns. However, the existing contract-type retirement pension system will be maintained so that employees and workplaces retain the right to choose.
The tripartite task force specified in the joint declaration the principle that “retirement pension funds must be managed solely for the benefit of participants.” It identified as follow-up tasks the establishment of safeguards to prevent conflicts of interest, strengthen internal controls, and protect benefit rights from risks such as embezzlement and bankruptcy.
Minister of Labor Kim Younghoon stated, “This agreement is the first case in which the structural limitations of the retirement pension system have been resolved through social dialogue,” adding, “We will ensure that legal and institutional reforms lead to a tangible strengthening of income security in old age for workers.”
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
