Global Retirement Update

Transcription

1 Aon Hewitt Legislative Reporting Global Retirement Update May 2015 This Update summarizes recent legislative developments and trends related to retirement and financial management and highlights recently passed and pending legislation that may require employers to take action to comply with new rules or review existing plans. Action May Be Required Netherlands Netherlands Under the Pensions Communications Bill, pension providers would be required to provide employees with pension information in three layers. The first layer would provide employees with information on key components of their plan in five minutes. The second layer would provide all of the information included in the first layer plus additional detail in 30 minutes. The last layer would provide the plan in detail and include information such as the annual report and articles of association. Pension providers would have to implement the communication plan, called Retirement 1-2-3, as of January 1, The Pension Federation expects to have two checklists available for pension administrators to follow in September The first checklist, Guide to Pensions, may be used when preparing employee onboarding communications. The second, Road to Your Pension, may be used to prepare communications for employees approaching retirement. Recent Developments Americas The U.S. Department of Labor s (DOL s) Employee Benefits Security Administration (EBSA) released a long-awaited proposed rule on the definition of fiduciary (i.e., conflict of interest). EBSA originally published a proposed rule on this issue in 2010 and then withdrew the rule in With the release of the rule, EBSA also provided a package of information for review, including a news release, a fact sheet, and frequently asked questions (FAQs). Along with the rule and other information, the DOL also provided a series of proposed prohibited transaction exemptions. The proposed rule defines who is a fiduciary of an employee benefit plan under ERISA as a result of giving investment advice to a plan or its participants or beneficiaries. The proposed rule also applies to the definition of a fiduciary of a plan (including an individual retirement account (IRA)) under section 4975 of the Internal Revenue Code of 1986 (Code). If adopted, the proposed rule would treat persons who provide investment advice or recommendations to an employee benefit plan, plan fiduciary, plan participant or beneficiary, IRA, or IRA owner as fiduciaries under ERISA and the Code in a wider array of advice relationships than the existing ERISA and Code regulations, which would be replaced. The proposed rule and related exemptions would increase consumer protection for plan sponsors, fiduciaries, participants, beneficiaries, and IRA Risk. Reinsurance. Human Resources.

2 owners. The document also withdraws the previously proposed regulation published in In connection with this proposal, the DOL is proposing new exemptions and amendments to existing exemptions from the prohibited transaction rules applicable to fiduciaries under ERISA and the Code that would allow certain broker-dealers, insurance agents, and others that act as investment advice fiduciaries to continue to receive a variety of common forms of compensation that otherwise would be prohibited as conflicts of interest. Comments on the proposed rule are due by July 6, The DOL stated that a public hearing will follow, with additional time allowed for comments. In Canada, Bill C-59, Economic Action Plan 2015 Act, No. 1, which includes provisions on tax-free savings account (TFSA) contributions and Registered Retirement Income Fund (RRIF) minimum withdrawals, received first reading on May 7, Among other matters, this bill purports to implement the following items from the 2015 Federal Budget: 1) increase the TFSA annual contribution limit to CAD 10,000 (no longer indexed), effective for 2015 and subsequent years; and 2) reduce the required minimum amount that must be withdrawn annually from a RRIF, a variable benefit money purchase registered pension plan, or a pooled registered pension plan. Bill 56, Ontario Retirement Pension Plan Act has been approved by the Ontario (Canada) Legislature. The Ontario government has confirmed its intent that the Ontario Retirement Pension Plan (ORPP) be in place by January 1, (Refer to the January 2015 Update for additional information.) In Quebec (Canada) Bill 34, An Act to amend the Supplemental Pension Plans Act with respect to the funding and restructuring of certain multi-employer pension plans (MEPPs), received Royal Assent and came into force on April 2, 2015.This legislation, with some exceptions, is effective retroactive to December 31, It amends the Quebec Supplemental Pension Plans Act to introduce special measures for the funding of certain MEPPs, as well as rules applicable to the restructuring of those plans when contributions are found to be insufficient. It is applicable to Quebec members of MEPPs registered everywhere in Canada. The new Nova Scotia (Canada) Pension Benefits Act (new PBA) will be effective June 1, The major changes include: immediate vesting; protection of common law spouses; phased retirement; codification of asset transfer policies; provisions related to surplus, contribution holidays; fees; new information provided on annual statements to active members that is applicable to statements to plan years ending after June 1, 2015; and annual valuations for defined benefit plans if a valuation report prepared at a date after June 1, 2015 indicates that the ratio of the solvency assets to solvency liabilities is less than Provisions of the new PBA, related to the following, have not yet been proclaimed in force: target benefit plans; void amendments; and Companies Creditors Arrangement Act. Plan texts will need to be amended for compliance. Such amendments must be filed before June 1, However, the plans must be administered to reflect the new legislative requirements from June 1, 2015 onward. Brazil s Chamber of Deputies has passed a provisional measure that affects the Fator Previdencíarío used to calculate old age pensions. The Fator Previdencíarío takes into account contribution rate, contribution period, age, and life expectancy in the calculation of an old age pension. In practice, it reduces the benefit for individuals who retire before age 65 (males) or age 60 (females). The minimum contribution period for males is 35 years and for females, it is 30 years. Under the amendment adopted by the Chamber, individuals would be permitted to retire with a full pension if the sum of age and contribution years was 95 (males) or 85 (females). The Mexican Senate has passed reforms that would entitle same-sex couples to social security benefits. Same-sex couples would be entitled to the same occupational risk, retirement, survivors, disability, sickness, and maternity benefits as heterosexual couples. The Chamber of Deputies must now vote on the pending legislation. The Honduran Congress is voting on a new social security law, which would create a new employer contribution requirement. The new system would consist of five pillars: basic social protection; social security; health care; occupational Global Retirement Update Aon Hewitt May

3 risk; and labor insurance. The first pillar would be a noncontributory pillar, consisting of a minimum guaranteed pension for the poor. The most controversial pillar is the labor insurance pillar, which entails the creation of a labor reserve fund. Under this pillar, nominal individual accounts would be set up for each employee; the employee would be permitted to withdraw funds upon the termination of employment. The total contribution rate for old age, survivors, and disability insurance and the labor reserve fund would be 6.5%; currently, the total contribution rate for old age, survivors, and disability is 3.0%. The Congress has voted on 53 of the 58 articles included in the bill. Asia Pacific The Australian government would change the asset threshold and asset taper for pensions under its 2015 budget.currently, individuals over age 65 with assets less than AUD 771,750 are able to claim a state pension. The proposed asset-free threshold is AUD 550,000. The government estimates that this change would allow approximately 170,000 individuals to receive a full or increased pension. The asset taper would increase from AUD 1.50 to AUD 3.00, meaning for every AUD 1,000 of assets over the asset-free threshold, the pension payment would be reduced by AUD 3.00 every two weeks. If passed, the effective date would be January 1, The government also announced plans to continue to index pension payments twice each year to the higher of the Consumer Price Index (CPI) or wage increases rather than the CPI only. Malaysia s Employees Provident Fund (EPF) has proposed four new initiatives that would affect the payout of EPF pensions. The first initiative would be to align the full withdrawal age (age 55) with the current retirement age (age 60) or allow individuals to continue to make contributions until age 60. As of 2016, individuals age 55 would be permitted to continue to withdraw the full amount at age 55; this age would increase to age 56 in 2019, age 57 in 2022, and gradually to age 60 in Alternatively, the EPF proposes to keep the full withdrawal age at age 55 but allow individuals who make the withdrawal at age 55 to open a separate account and continue to make contributions until age 60. Under the second initiative, the entire gross pay of individuals earning less than MYR 900 per month would be subject to EPF contributions. Currently, contributions are based only on basic salary. The third initiative would entitle members to receive dividends until age 100 (currently age 75). Lastly, employees would have the ability to select a fund that is Sharia compliant. The Filipino Social Security System (SSS) has opened enrollment for applications in a voluntary provident fund program that gives individuals a new vehicle for retirement savings. The SSS Personal Equity and Savings Option (SSS PESO) was scheduled to open enrollment in December 2014; however, enrollment was delayed due to administrative issues. SSS members under age 55 with six consecutive SSS contributions within the last 12 months prior to enrollment and who have not yet filed a claim with SSS are eligible to participate. SSS PESO contributions can be made at any time as long as an SSS contribution is made in the same month. Qualified individuals can contribute a minimum of PHP 1,000 and a maximum of PHP 100,000 per year. Enrollment is now open for individuals in the National Capital Region; it will be open nationwide by September In Pakistan, the Employee Old Age Benefit Institution (EOBI) increased the minimum pension payable. Effective April 1, 2015, the minimum monthly benefit increased from PKR 3,600 to PKR 5,250. Europe To address the issue of pension scams, the U.K. Pensions Regulator has issued updated material and a new industry code of practice. The Regulator is continuing its campaign alerting trustees and members to the dangers of pension liberation fraud, now referred to as pension scams. It has updated its scorpion material, which plans should automatically include with transfer information sent to members. An industry-wide group has published a voluntary code of practice (Combating Pension Scams A Code of Good Practice), which sets out a detailed due diligence process intended to be an industry standard for dealing with transfer requests. The code has three principles for trustees, providers, and administrators, who should: Raise awareness of pension scams with members; Global Retirement Update Aon Hewitt May

4 Have a process for determining if a receiving plan is operating as part of a pension scam; and Be aware of known current strategies of perpetrators of pension scams. Trustees should check the plan administrator s current processes against those described in the Code, and companies may wish to understand what actions are being taken by those running their plans. The German government has drafted legislation that would align the treatment of pensions with the European Union Portability Directive. Under the draft legislation, the vesting period would be reduced from five to three years, and the earliest age at which employees could vest would be reduced from age 25 to age 21. One difference between the draft legislation and the Directive is that small pensions could be paid out as a lump sum rather than over time. The Italian Constitutional Court recently ruled that a measure to freeze pension increases was a violation of acquired rights. The measure was included in the 2011 Save Italy decree issued by the Monti government. In an attempt to help stabilize the country s finances, the government froze the indexation of pensions to the inflation rate for 2012 and The freeze affected only pensions that exceeded three times the minimum pension provided by social security (INPS). The government must now develop options for repayment without violating its Growth and Stability Pact with the European Union. Sweden s Ministry of Finance announced plans to reform the tax treatment of domestic and foreign pensions. Under the reforms, the tax deduction for private pension premiums (currently SEK 1,800) would be abolished. Foreign social security pensions would be subject to the same tax rates as Swedish retirement and survivors pensions. If passed, the changes would be effective January 1, The Czech Ministry of Finance submitted a bill to the Cabinet that would phase out the second-pillar pension system. Under the proposed bill, contributions to the second pillar would not be accepted after January 1, Accumulated savings would be paid to members by October 1, Estonia s new coalition government proposes a reduction in the social security contribution rate. Under the government s tax objectives, the employer contribution rate would be reduced from 33% to 32% of gross pay. The Russian government has indicated that it will not eliminate the funded individual pension savings system. Under the current retirement system, old age pension contributions are divided into two parts for employees born in or after 1967: 16% of the pay up to a specified ceiling is paid to the pay-as-you-go system and 6% of pay up to a specified ceiling is deposited in individual savings accounts. Since 2013, there has been a freeze on contributions to these nonstate funds, with the amount deposited in the pay-as-you-go system. In related news, the government appears to be closer to considering an increase in the retirement age from age 60 for males and age 55 for females to age 65 for both genders. The Ukrainian government announced plans to introduce a three-pillar pension system. If proposed bills are passed, effective January 1, 2017, a three-pillar system would be established. The second pillar would consist of funded individual savings accounts managed by three to four pension fund administrators, and the third pillar would consist of voluntary saving plans. The government wants to abolish special retirement systems for prosecutors, judges, and civil servants as of January 1, These individuals would join the general pensions system. The parliament is expected to vote on the bills before its summer recess. For More Information For more information on the topic and countries in this newsletter, please refer to the Aon Hewitt Country Profiles eguide. You can learn more about the Country Profiles eguide here. If you are a subscriber to the Aon Hewitt Country Profiles eguide platform and wish to access the full text of any Country Profile including all Updates, please click here and enter your eguide User Name and Password. Global Retirement Update Aon Hewitt May

5 About Aon Hewitt Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information on Aon Hewitt, please visit aonhewitt.com Aon plc This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon Hewitt s preliminary analysis of publicly available information. The content of this document is made available on an as is basis, without warranty of any kind. Hewitt disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Hewitt reserves all rights to the content of this document. Global Retirement Update Aon Hewitt May