What about Employee Benefits? kpmg.com/be/pensions

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1 What about Employee Benefits? kpmg.com/be/pensions

2 Harmonization of pension plans

3 Harmonization of pension plans Introduction - Antwerp Labor Court, 4 June 2008: the difference of treatment between blue collars and white collars regarding the complementary pensions = accepted. - The decision of the Constitutional Court of 7 July 2011 concerned only the difference in treatment between blue collars and white collars regarding notice periods + waiting day (deadline July 8, 2013) - BUT consequences on other laws such as labor law / social security law. - To prevent the judgment to have implications regarding complementary pensions (debatable, but risk for the employer): immediate action by the legislature. - Title III of the Act of 5 May 2014 amending the retirement and survivor s pension, establishing the transition allowance in the pension scheme for workers and progressively removing differences of treatment which are based on distinction between blue collars and white collars regarding the complementary pensions KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 3

4 Harmonization of pension plans Overview Harmonization Process: timeline 08/07/ /07/ /06/ /01/ /01/ /05/ /01/2023 Period N1 Period N2 Period N3 Judgment of the Arbitration Court (notice period) Publication of the law on the unique status (LPC modification) Cut-off dates Judgment of the Constitutional Court (notice period and day of deficiency) Publication of the draft bill (complementary pensions) Collective Labor Agreement deposit for each sector 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 4

5 Harmonization of pension plans Period N1 General principles 11/06/ /01/ /01/2025 Period N1 Period N2 Period N3 Publication of the law on the unique status (LPC modification) Cut-off dates - Period 1 represents the working periods before 1 January Neutralized periods: no discrimination, even in case of a distinction between the pension plan for white collars and for blue collars KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 5

6 Harmonization of pension plans Period N2 - General principles 11/06/ /01/ /01/2025 Period N1 Period N2 Period N3 Publication of the law on the unique status (LPC modification) Cut-off dates - The period N2 is the working periods between 1 January 2015 and 1 January It is called standstill period. - No discrimination for a difference in treatment between the employee pension plan and the worker pension plan if this difference was introduced before 1 January Immunization only if a harmonization path is implemented. - Interdiction to introduce a new pension plan with a difference between white collars and blue collars. - Interdiction to change an existing pension plan to increase a difference in treatment between white collars and blue collars KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 6

7 Harmonization of pension plans Period N2 - Exceptions 11/06/ /01/ /01/2025 Period N1 Period N2 Period N3 Publication of the law on the unique status (LPC modification) Cut-off dates - Possibility to amend an existing pension scheme or to introduce a new one with a difference in treatment between the white collars and the blue collars to the extent that the goal is to gradually reduce the existing differences. Pension plan Defined Contribution White collars: annual premium = 5% x S Blue collars: annual premium = 1% x S Authorized change Pension plan Defined Contribution White collars: annual premium = 5% x S Blue collars: annual premium = 3% x S 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 7

8 Harmonization of pension plans Period N2 - Exceptions 11/06/ /01/ /01/2025 Period N1 Period N2 Period N3 Publication of the law on the unique status (LPC modification) Cut-off dates - Regarding a merger or a legal transfer of business (CLA No. 32bis), the prolongation by the assignee of a pension plan that is in application by the assignor and includes differences between white collars and blue collars will not be considered as discriminatory. Company A Company A pension scheme DefinedContribution White collars: monthly contribution= 5%x S Blue collars: monthly contribution = 1%x S No discrimination Acquisition of Company A by Company B Company B Company B pension scheme DefinedContribution White collars: monthly contribution= 5%x S Blue collars: monthly contribution = 1%x S 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 8

9 Harmonization of pension plans Period N2 Harmonization process 11/06/ /01/ /01/2025 Period N1 Period N2 Period N3 Publication of the law on the unique status (LPC modification) Cut-off dates - Reminder: Neutralization of the working periods N2 only if a process of harmonization has been developed. - Every employer can freely define the actions to be taken in order to determine its own process of harmonization. He must be able to demonstrate that: - He has taken steps to obtain the necessary information on his pension plans - He has conducted interviews with the social partners - He has outlined different solutions to achieve harmonization - He has contacted an expert to simulate all different solutions - Employer is free to choose the process, but must take into account what happens at the level of the competent joint (sub-) committee KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 9

10 Harmonization of pension plans Period N2 Sectoral point of view 11/06/ /01/ /01/ /01/2023 Period N1 Period N2 Period N3 Publication of the law on the unique status (LPC modification) CLA deposit for each sector Cut-off dates - The sectors have the responsibility to process in priority the harmonization of pension plans. - Joint Committees (and/or subcommittees) must initiate negotiations without any delay in order to have a clear vision of their harmonization path until These negotiations should lead to Memorandum of Understanding within each Joint Committee (and / or subcommittees). - The ultimate goal of these Memorandum of Understanding is to conclude a CLA at the latest by 1 January The CLA will aim to remove all differences in treatment between white collars and blue collars as from 1 January Biannual discussions about pay and working conditions, as of 1 January 2016, 2018, 2020 and 2022, where Joint Committees (and / or subcommittees) will need to provide the National Labor Council with a report on the progress of their work KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 10

11 Harmonization of pension plans Period N2 Sectoral point of view 11/06/ /01/ /01/ /01/2023 Period N1 Period N2 Period N3 Publication of the law on the unique status (LPC modification) CLA deposit for each sector Cut-off dates Penalties: - In case a joint committee (and/or sub-committee) doesn t get to the conclusion of the collective agreements at 1 January 2023: - The employers have until 1 January 2025 to make the necessary adjustments on enterprise level. - The king can take the necessary measures to put an end to the differences in treatment between white collars and blue collars. These measures will be selected from a list of different options that has been prepared in consultation with the National Labor Council and will be determined in a new Royal Decree KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 11

12 Harmonization of pension plans Period N2 - Employers in sectors? 11/06/ /01/ /01/ /01/2023 Period N1 Period N2 Period N3 Publication of the law on the unique status (LPC modification) CLA deposit for each sector Cut-off dates - Two factors encourage employers to act quickly: - Immunization of N2 work periods only if a harmonization path is implemented. - Very short period between 1 January 2023 and 1 January Consequence: Employers cannot wait for the sectors to implement their harmonization path. - There are solutions! - Opting out (sectoral plan organization, partial or total, by the employer). - Establishment of a harmonized plan that takes into account the different sectoral implementation plans. - Exclusion of the sector plan (own pension plan to the company under certain conditions). - Etc KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 12

13 Harmonization of pension plans Period N3 General principles 11/06/ /01/ /01/2025 Period N1 Period N2 Period N3 Publication of the law on the unique status (LPC modification) Cut-off dates - Period N3 represents the working periods after 1 January From that date onwards, all differences in treatment of a pension plan for white collars and blue collars will be considered as discriminating (cut-off date). - Pension plans often include a coverage in case of life at the pensionable age as well as warranty in case of death during the career. Thus, harmonization should be established for these two coverages KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 13

14 Harmonization of pension plans Period N3 - Exceptions 11/06/ /01/ /01/2025 Period N1 Period N2 Period N3 Publication of the law on the unique status (LPC modification) Cut-off dates - Some differences of treatment may remain after January 1, 2025 and will not be considered discriminatory: - A difference in treatment from the refusal of a member to join a new scheme set up by the employer for the harmonization - Grandfathering (new Article 14, paragraph 1, 2nd indent LPC). - The right of refusal is possible if the new plan is not introduced by CLA. - Opt-in possibility (in case of changing the pension plan to which they are affiliated). - Evaluation in A difference in treatment from a conventional company transfer. - A difference in treatment between blue collars who are not in a comparable situation. Thus the distinguishing criteria traditionally used in pension plans (members of management, executives, sales representatives, according distinction grade Hay,...) may therefore still be applied (Article 11 of the Act of 5 May 2014). - However, it is forbidden to use the above criteria with the aim of maintaining or introducing a difference in treatment between white collars and blue collars KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 14

15 Other employee benefits

16 Other employee benefits Context - For other employee benefits, legal uncertainty is present. - In its judgment of 7 July 2011, the Constitutional Court seems to implicitly suggest that other differences, based on the criterion for distinguishing manual and intellectual work, could also be considered as unconstitutional. - Article 45 of the Social Security Act requires an employer to grant additional benefits to staff without distinction between blue collars of the same category (again, excluding complementary pension - specific law). Thus, if the blue collars-white collars distinction is ruled unconstitutional, white collars and blue collars should receive the same benefits. - However, no specific law applies to these other complementary benefits. - Moreover, no specific legislative initiative is presently known, unlike what was done for the complementary pensions. Hospitalization Outpatient Guaranteed income Exemption 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 16

17 Other employee benefits Current situation - Hospitalization and ambulatory cares Hospitalisation Maladie grave Frais ambulatoires - In general all white collars and blue collars of the same organization benefit from the same coverage. - However, inequalities can be defined at the level of funding of the coverage (by the employer or not) or at the conditions for affiliation. Pré- Hospitalisation Tiers payant Franchise Plafond Plafond - Guaranteed income - Important differences were found between the coverage of the white collars and the blue collars. - The proposed coverages can be very varied and therefor hard to harmonize. Post- Plafond Plafond - Exoneration - Exoneration coverage is directly related to the complementary pension plan. - A harmonization of this benefit could happen at the same moment as the harmonization of the complementary pension plans. Incapactié de travail 1 er mois 2 e mois Salaire garanti 100% Mutuelle Allocation d invalidité Exonération de la prime Délai de carence Fin du délai de carence 60% du salaire plafonné Formule Pension / Décès 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 17

18 Conclusion

19 Conclusion 3 Pillars system Legal Pension Complementary Pension Individual Pension First pillar Second pillar Third pillar Distribution/sharing funding Capitalization funding 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 19

20 Conclusion First observation White collars Before the law Blue collars First pillar On average 55% of the last salary First pillar On average 61% of the last salary Second pillar On average 8% of the last salary Second pillar On average 8% of the last salary 70% of the last salary (gross amount) (2) 69% of the last salary (gross amount) (2) (2) Source: AonPension Survey KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 20

21 Conclusion First observation With Unique Status (worst case scenario) First pillar First pillar Second pillar Harmonization Second pillar 70% of the last salary (gross amount) 69% 76% of the last salary (gross amount) 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 21

22 Conclusion Harmonization path: what definition? - How? (Upwards? Intermediate? Sectors intervention?...) - When? (At every moment? At the end of the career? ) Harmonization of 2 plans DC Harmonization of 2 plans DB Retirement capital DC-white collars Retirement capital DC-white collars DC-New DC-blue collars DC-blue collars Years of service Years of service 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 22

23 Conclusion Harmonization path: what about the refusal to be affiliated to new pension scheme? - A difference in treatment from the refusal of a member to join a new scheme set up by the employer for the harmonization (section 11 of the Act of 5 May 2014) ! Harmonization of 2 plans DC Harmonization of 2 plans DB Retirement capital Harmonized Plan (option 2) DC-white collars Harmonized Plan (option 1) Retirement capital DC-white collars Harmonized Plan (option 2) Harmonized Plan (option 1) DC-Blue collars DC-Blue collars Harmonization Years of service Harmonization Years of service 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 23

24 Conclusion Thoughts - Aside from using the criteria of distinctiveness, other solutions are possible to adapt a pension plan to the salary profile of the employee. It is, for example, possible to introduce a system of the type Defined Contribution with a Step-rate formula. Pension plan for blue collars Defined Contribution Annual premium = 2% x S If S = , Annual premium = 670 Pension plan for white collars Defined Contribution Harmonized pension plan Defined Contribution Annual premium = 1% x S1 + 7% x S2 + 14% x S3 With S1 = limited to and S2 = S limited to S1 If S = , Annual premium = 665 If S = , Annual premium = Annual premium = 5% x S If S = , Annual premium = Regardless of the alternatives, these should be subject to a study (to determine all costs and other consequences for the blue collars) KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 24

25 Conclusion Pension Death or DC (only) Pension capital Harmonization? DC Plan Death benefit a% x S DB Plan b% x S Year of service Year of service Guaranteed income / Exemption Hospitalization / Ambulatory Guaranteed wage Mutual insurance company Disability allowance Premium exemption Hospitalization Serious illness Ambulatory costs Work incapacity 1 st month 100% Before Ceiling Ceiling 2 nd month Waiting time End of the waiting time 60% of the maximum salary Formula Pension/ Death Hospitalization After Third-party payer Franchise agreement Ceiling Ceiling 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 25

26 Conclusion What to do practically? Start of the standstill period Register of a collective labor agreement for each sector Cut-off date 01/01/ /01/ /01/2025 Monitoring of the evolution of the discussions at the sectoral level Inventory Discussion HR white collars Simulation harmonization costs - Discrimination white collars blue collars - Focus on change - Introduction of a step-rate formula? - Definition of new categories of personnel? - Take sectors into account in the simulations - Total reward statement? - Legal consequences? - Financial consequences? 2016 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 26

27 Contact us Muriel Lejour Director & Qualified Actuary IABE Financial Risk Management T: E: mlejour@kpmg.com Gaëtan Pirart Manager Financial Risk Management T: E: gpirart@kpmg.com Vincent Simonart Manager Financial Risk Management T: E: vsimonart@kpmg.com kpmg.com/be/pensions kpmg.com/app 2017 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.