Change of Retirement Benefit Scheme
Changing the type or the details of Retirement Benefit Scheme
- An employer who intends to change the type of the existing retirement benefit scheme to different one must obtain the consent of the labor union, to which a majority of employees are members (if no such a labor union exists, the consent from a majority of employees is required (Article 4(3) of the Act on the Guarantee of Workers’ Retirement Benefits).
- In order to modify the details of the newly selected retirement benefit scheme, the employer must seek opinions from the labor union (or a majority of employees if there is no labor union to which a majority of employees are members (Article 4(4) of the Act on the Guarantee of Workers’ Retirement Benefits).
※ However, if such details are supposed to be changed in a manner unfavorable to the employees, the consent from the labor union (or a majority of employees if there is no labor union to which a majority of employees are members) must be obtained.
- An employer, who changes the type or details of a retirement benefit scheme without obtaining the consent or the opinions from the labor union (or a majority of employees if there is no labor union to which a majority of employees are members) or each individual employee, will face a fine of up to KRW 5 million (Subparagraph 1 of Article 46 of the Act on the Guarantee of Workers’ Retirement Benefits).
Change and Abolition of Retirement Pension Plan, etc.
Change of Retirement Pension Plan
- If a defined benefit pension plan is newly established without the abolition of the existing defined contribution pension plan, a change to the rules of the existing defined contribution pension plan must be made (e.g., specifying the suspension of contribution payment after the establishemnt of a defined benefit pension plan, etc.) at the same time while reporting the rules of the newly established defined benefit pension plan to the Ministry of Employment and Labor (https://www.moel.go.kr/pension).
Abolition or Suspension of Retirement Pension Plan
- When a retirement pension plan is abolished or temporarily suspended, a retirement allowance system shall be applied after the abolition or during the period of the suspension (Article 38(1) of the Act on the Guarantee of Workers’ Retirement Benefits).
- When abolishing the existing retirement pension plan, the employer must take the following actions without any delay to ensure that benefits are paid to enrollees from the reserves (Article 38(2) of the Act on the Guarantee of Workers’ Retirement Benefits, and Article 38 of the Enforcement Decree thereof):
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Category
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Description
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Reporting to the Minister of Employment and Labor
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A report of abolition containing the following must be filed within one month from the date the retirement pension plan is abolished: ▪ The consent of employees' representatives to the abolition of the retirement pension plan; ▪ Grounds for the abolition of the retirement pension plan and the effective date thereof; ▪ The reserves and the unpaid contributions which are calculated based on the date the retirement pension plan is abolished; √ Defined benefit pension plan: the shortage in reserves. √ Defined contribution pension plan: the amount including delay charge incurred from the delay in the payment of contributions. ▪ Remedial plan to settle the unpaid contributions such as the expected date for payment of unpaid contributions (applicable only to a defined contribution pension plan)
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Notification of pension plan enrollees
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▪ The reserves and the unpaid contributions which are calculated based on the date the retirement pension plan is abolished: √ Defined benefit pension plan: the shortage in reserves √ Defined contribution pension plan: the amount including delay charge incurred from the delay in the payment of contributions; ▪ Statement of benefits and payment procedure; ▪ Period for the interim settlement of retirement benefits; ▪ Remedial plan to settle the unpaid contributions such as an expected date for payment of unpaid contributions (applicable only to a defined contribution pension plan)
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Request for action to the plan trustee
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▪ The employer must remit unpaid contributions to the trustee within 14 days from the date the retirement pension plan is abolished. ▪ A request must be made to the trustee for paying benefits to the enrolless.
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- When a retirement pension plan is temporarily suspended, the employer and the plan trustee must continue to carry out necessary tasks for the operation of the reserves, including the following (Article 38(3) of the Act on the Guarantee of Workers’ Retirement Benefits, and Article 39 of the Enforcement Decree thereof):
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Category
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Description
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Employer
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▪ Announcement of a public notice to the enrollees about measures to handle the suspension period of the retirement pension plan, such as grounds for suspension of the retirement pension plan, suspension date, schedule for resumption, a plan to pay the unpaid contributions if any, etc. ▪ Education for the enrollees pursuant to the former part of Article 32(2) of the Act on the Guarantee of Workers’ Retirement Benefits. ▪ Measures necessary to continuously perform the services prescribed by the relevant acts and subordinate statues, with regard to claims for payment of benefits, management of reserves, etc. while the retirement pension plan is suspended. ▪ Other tasks specified by the Minister of Employment and Labor as necessary for the continuity of the retirement pension plan and for the protection of plan enrollees.
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Retirement pension plan trustee
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▪ Payment of benefits to retiring enrollees, etc. ▪ Education for the enrollees as requested by the employer pursuant to the later part of Article 32(2) of the Act on the Guarantee of Workers’ Retirement Benefits. ▪ Tasks prescribed by the acts and subordinate status with regard to the payment of benefits, the operation of reserves, the notification of the operation status, etc. and any tasks specified in the contracts for the operational management services and the asset management services. ▪ Other tasks specified by the Minister of Employment and Labor as necessary for the continuity of the retirement pension plan and for the protection of plan enrollees.
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- When paying benefits to the enrollees due to the abolition of the retirement pension plan, the employer and the trustee must pay benefits in the way of transfer to the enrollee's designated individual retirement account (Article 38(4) of the Act on the Guarantee of Workers’ Retirement Benefits).
※ For enrollees without a designated individual retirement account, benefits must be transferred to the account that is operated by the plan trustee (Proviso of Article 38(4) of the Act on the Guarantee of Workers’ Retirement Benefits).
- The payment of benefits due to the abolition of the retirement pension plan is deemed as interim settlement. In this case, the period for interim settlement varies depending on the type of retirement pension plan as follows (Article 38(5) of the Act on the Guarantee of Workers’ Retirement Benefits, and Article 40 of the Enforcement Decree thereof):
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Classification
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Description
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Defined benefit pension plan
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▪ The amount of interim settlement is calculated by proportionally dividing the amount of reserves accumulated for each business, considering the length of the consecutive employment, the average wage and the amount of benefits, which is pursuant to subparagraph 4 of Article 13 of the Act on the Guarantee of Workers' Retirement Benefits, of each enrolle ▪ The period of interim payment is counted based on the amount of interim settlement.
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Defined contribution pension plan
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The period of interim settlement is counted starting from the date when each enrollee joined the retirement pension plan to the last day of the period for which the employer paid contributions.
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Individual retirement plan
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