Retirement Plans
Establishment of a Retirement Allowance System
Retirement Allowance System
- An employer who intends to establish a retirement allowance system is required to set up the system in the manner that the retiring employees are paid retirement benefits in an amount corresponding to at least 30 days’ average wage for every year of continuous employment (Article 8(1) of the Act on the Guarantee of Workers' Retirement Benefits).
Others equivalent to the retirement allowance system
- If the employer subscribed to a retirement insurance or lump sum retirement trust prior to the date of December 1, 2005, which satisfies all of the following conditions, having his/her employees as the insured or the beneficiary so that the employees can receive their retirement benefits in a lump sum or in the form of pension, he/she is deemed to have established a retirement allowance system [Article 2(1) of the Supplementary Provisions (Act No. 10967 of July 25, 2011) under the Act on the Guarantee of Workers' Retirement Benefits; Article 4(1) of the Supplementary Provisions (Presidential Decree No. 23987 of July 4, 2012) under the Enforcement Decree of the Act on the Guarantee of Workers' Retirement Benefits]:
· The retiring employee can claim the finance institutions that deal with the retirement insurance, etc. ("insurance companies") by directly choosing between a lump-sum allowance and pension (excluding where the employer is a subscriber to a lump sum retirement trust).
※ However, the employee whose length of continuous employment is less than one year cannot claim a lump sum allowance or pension, which, in this case, shall be attruted to the employer.
· In the event of the cancellation of a retirement insurance contract, etc., the refund (“cancellation refund”) shall be attributed to the employee designated as the insured or the beneficiary.
※ However, if the length of continuous employment of an employee is less than one year, the cancellation refund is attributed to the employer.
· The rights of the employees who are subject to a lump sum allowance, pension or a cancellation refund as the insured or the beneficiary of a retirement insurance, etc. cannot be transferred or provided as secruty to a third party.
· The insurance company is required to clearly explain the terms of the insurance contract to the insured or the beneficiary before it is signed, and must notify him or her after it is signed.
· The insurance company is required to send an annual notification to the insured or the beneficiary about the insurance premiums or trust installments paid or made by the employer and the expected amount of the lump-sum allowance or pension.
Measures to prevent retirement allowances from being decreased
- Where a circumstance falls under any of the followings, an employer whoestablished a retirement allowance system shall inform in advance employees of thefact that retirement benefits may be decreased and, through the consultation withthe representative of the employees, take measures necessary to prevent the retirementallowances from being decreased, such as modification into defined contribution plan or SME retirement pension fund plan, improvement of standards for calculation of retirementbenefits, etc. (Article 32(5) of the Act on the Guarantee of Employees' Retirement Benefits).
· Where an employer intends to execute a system to extend or guarantee the retirement age by adjusting the wages of employees based on a certain age, the length of continuous services or the amount of wage through collective agreements, employment rules, etc.;
· Where employees continue to work shorter contractual work hours for at least three months as their employer shortens the contractual work hours by at least one (1) hour a day or five (5) hours a week under agreement with its employees;
· Where the wages of employees are decreased due to the shortened work hours;
· Others prescribed by the Enforcement Regulation of the Guarantee of Workers’ Retirement Benefits Act.
- An employer who fails to inform employees of the fact that the retirement allowances may be decreased or take measures necessary to prevent the decrease of retirement allowances shall be punished by a fine not exceeding KRW 5 million (Article 46(3) of the Act on the Guarantee of Workers' Retirement Benefits).