Global Benefits Legislative Developments

Transcription

1 fg Global Benefits Legislative Developments July 2011 Page 1

2 North America... 3 Europe... 9 Asia-Pacific Middle-East Latin America and the Caribbean Disclaimer Page 2

3 North America Page 3

4 United States... 5 Employment Terms and Conditions Health Care System... 6 Taxation of Compensation and Benefits... 6 Canada Taxation of Compensation and Benefits... 8 Page 4

5 United States Employment Terms and Conditions In the United States, Connecticut is the first state to require paid sick leave. On July 2, 2011, the governor of Connecticut signed Senate Bill 913, which, effective January 1, 2012, requires private employers that employ 50 or more individuals in the state to provide paid sick leave to certain service workers on an annual basis. Connecticut joins the District of Columbia and the city of San Francisco in legislating a paid sick leave requirement. According to the law, the paid sick leave must accrue at a rate of 1 hour of paid sick leave for each 40 hours worked and in one-hour increments, up to a maximum of 40 hours per calendar year. Furthermore, employers must pay service workers for the leave at a rate equal to the greater of either: The normal hourly wage (i.e., the average hourly wage of the service worker in the pay period prior to the one in which the employee used the paid sick leave) for that employee; or The minimum fair wage rate (USD 8.25 for 2011) in effect for the pay period during which the employee used paid sick leave. An employer must permit a service worker to use accrued paid sick leave for the following reasons: A service worker s own illness, injury, or health condition, the medical diagnosis, care, or treatment of his/her mental or physical illness, injury, or health condition, or preventative medical care; The illness, injury, or health condition, the medical diagnosis, care, or treatment of a mental or physical illness, injury, or health condition, or preventative medical care of a service worker's child or spouse; and Where a service worker is a victim of family violence or sexual assault, for medical care or psychological injury or disability, to obtain services from a victim services organization, to relocate due to the family violence or sexual assault, or to participate in any civil or criminal proceedings related to or resulting from the family violence or sexual assault. The U.S. Department of Labor (DOL) released a final rule on the extension and alignment of applicability dates for retirement plan fee disclosure rules. The service provider fee disclosure rule requires plan fiduciaries to receive comprehensive information about their direct and indirect compensation from certain retirement plan service before entering into a contract or arrangement for services. With the final rule, the effective date for service provider fee disclosure has been extended to April 1, Additionally, the DOL published a final participant fee disclosure regulation on October 20, 2010, requiring that employers disclose information about plan and investment fees to workers who direct their own individual account plan investments. General plan and fee information must be provided annually to all eligible participants and also to all newly eligible participants (initial/annual disclosure). Participantspecific fee disclosure must be provided on a quarterly basis. This regulation applies to plan years beginning on or after November 1, After considering comments received, the final rule made significant changes so that the applicability date will work in conjunction with the new effective date of the service provider fee disclosure regulation. Plans must comply with the initial/annual disclosure to participants 60 days after the effective date of the service provider fee disclosure rule or 60 days after the applicability date of the participant fee disclosure rule. Additionally, quarterly fee disclosure must be provided no later than 45 days after the end of the quarter in which the initial/annual fee disclosure is Page 5

6 provided. According to the DOL, this linkage will ensure that the service provider fee disclosure regulation becomes effective first and that all plans will be able to take advantage of the transition period following the effective date of the service provider regulation. Health Care System The U.S. Department of Health and Human Services (HHS) announced the availability of USD 10 million to establish and evaluate comprehensive workplace health promotion programs. The funds are provided from the Affordable Care Act s Prevention and Public Health Fund. The goal is to improve workplace environments so that they support healthy lifestyles and reduce risk factors for chronic diseases such as heart disease, cancer, stroke, and diabetes. According to HHS, the funds will be awarded through a competitive contract to an organization with the expertise and capacity to work with groups of employers across the nation to develop and expand workplace health programs in small and large worksites. Participating companies will be charged with educating employees about good health practices and establishing work environments that discourage tobacco use and promote physical activity and proper nutrition. Taxation of Compensation and Benefits The U.S. Internal Revenue Service (IRS) issued proposed regulations intended to clarify the scope of the performance-based compensation exception to the USD 1 million deduction limitation contained in Code Section 162(m), applicable to certain highly compensated employees of public companies. The proposed regulations address: The per person/per period plan limits for stock options and stock appreciation rights (SARs); The per person/period plan limits for amounts paid under a performance goal; and Transition relief for private companies that becomes public. The proposed regulations explicitly require that a plan under which an option or SAR is granted must state the maximum number of shares with respect to which options or SARs may be granted during a specified period to any individual employee. (The current regulation does not include the word individual. ) Similarly, the proposed regulations provide that the maximum amount payable under a performance goal disclosed to shareholders must be expressed in terms of an individual employee. Finally, the proposed regulations clarify that the special transition relief relating to equity awards (stock options, stock appreciation rights, and restricted property) granted by private companies that later become public does not apply to restricted stock units or phantom stock arrangements. Although the proposed regulations contain some conflicting language as to the effective date(s), it is generally understood that the regulation pertaining to plan per person/per period limits on options and SARs is effective for exercises occurring on or after June 24, with the change applicable to the newly public company transitional rules going into effect for restricted stock units and phantom stock arrangements settled after the final regulations are published. Page 6

7 Canada In Ontario (Canada), Bill 133, the Family Statute Law Amendment Act, 2009, which introduces major changes to the valuation, division, and settlement of pension assets on spousal relationship breakdown, received Royal Assent. Draft regulations were released in March, and the final rules for dividing pension assets are now contained in Ontario Regulation 287/11, Family Law Matters, with complementary amendments to General Regulation 909. Former spouses must apply for an immediate payment of their share of pension assets, either as a lump sum transfer or division of monthly pension payments. Pension assets must be valued by the plan administrator, who may charge a fee. New family law forms, available by September 30, 2011, must be used by plan administrators and spouses when valuing and dividing pension assets, but will not be filed with the Financial Services Commissioner of Ontario. Actual division of pension assets remains optional, although the value of a married spouse s pension assets must be included in family property when calculating and dividing net family property. The new rules will apply to common-law spouses on consent. If a court order, family arbitration award, or domestic contract is made before January 1, 2012, a former spouse will only receive a share of the member s benefits after the member terminates employment or plan membership, retires, dies, or reaches normal retirement age under the plan. If an order, arbitration award, or domestic contract requiring a division of assets held in a locked-in account is made on or after January 1, 2012, the former spouse can start receiving payment of income out of his or her own locked-in account no earlier than the date on which he or she reaches age 55, and if such an order, arbitration award, or domestic contract is made before January 1, 2012, the current rules will apply and the former spouse can start receiving payment of income out of his or her own locked-in account based on the former plan member s age. In light of revisions to the Canadian Institute of Actuaries (CIA) Standards of Practice Practice-Specific Standards for Pension Plans, effective December 31, 2010, the Financial Services Commissioner of Ontario has released Actuarial Guidance. Under Actuarial Guidance Note # 1, the actuary should: In selecting actuarial assumptions and determining the appropriate margins to apply, discuss with the plan administrator past and expected future experience, and identify a range of reasonable assumptions and their suitability in the context of meeting plan funding objectives; Discuss with the Board of Trustees or other entity responsible for the administration of a multiemployer pension plan or jointly sponsored pension plan whether it is appropriate to include margins for adverse deviations, with due consideration to the interests of plan stakeholders and potential inequities among generations of plan members, their employers, and other plan stakeholders; In developing the best estimate discount rate, discuss with the plan administrator whether the plan s investment policy reflects funding objectives and liabilities, the demographic profile of the plan, risk tolerances of plan stakeholders, investment objectives, and other relevant factors; Provide comments in the report on potential risks to meeting funding objectives due to the adopted investment policy; Page 7

8 For a final or best average earnings plan, continue to include an assumption for future salary increases; and Follow the CIA Educational Note, Determination of Best Estimate Discount Rates for Going Concern Funding Valuations, in justifying assumptions for value-added returns from active management. Quebec (Canada) Bill 10, An Act respecting mainly the implementation of certain provisions of the Budget Speech of March 17, 2011 and the enactment of the Act to establish the Northern Plan Fund, received Assent and came into force on June 13, The Bill amends the Quebec Pension Plan to: Increase the rate of contribution for the years 2012 to 2017; Introduce a mechanism to increase the contribution rate for subsequent years according to the increase in an amortization payment rate set out in the Plan; and Amend the method for adjusting the basic monthly benefit amount. A draft regulation has been published in Quebec s (Canada) Official Gazette to increase premium rates under the Act respecting parental insurance, effective January 1, The premiums would increase as follows: CAD 0.03 cents per CAD 100 of payroll for employers; CAD per CAD 100 of salary or wages for employees; and CAD per CAD 100 of income for selfemployed workers. This special adjustment is intended to bring down the accumulated deficit of the Parental Insurance Fund, after which premium rates will be returned to their equilibrium level so that premiums collected are sufficient to cover benefits and operating costs on a yearly basis. Taxation of Compensation and Benefits Revenu Quebec (Canada) has provided information on the tax credit for experienced workers. Starting next year, tax otherwise payable by persons age 65 and over on a portion of their work income over CAD 5,000 (including salaries, wages, and other remuneration) will be eliminated. The exempted amount is phased in at CAD 3,000 for the 2012 taxation year, and will rise to CAD 10,000 by Page 8

9 Europe Page 9

10 Austria Belgium Employment Terms and Conditions Taxation of Compensation and Benefits Bulgaria Employment Terms and Conditions Czech Republic Employment Terms and Conditions Estonia Taxation of Compensation and Benefits Finland France Employment Terms and Conditions Greece Hungary Employment Terms and Conditions Ireland Employment Terms and Conditions Italy Netherlands Employment Terms and Conditions Norway Employment Terms and Conditions Portugal Taxation of Compensation and Benefits Russia Slovak Republic Page 10

11 Spain Switzerland Taxation of Compensation and Benefits Ukraine United Kingdom Page 11

12 Austria The International Monetary Fund (IMF) and Organization for Economic Development and Cooperation (OECD) have warned the Austrian government that early retirement incentives are unsustainable. In separate analyses, the two institutions recommend that the government abolish incentives for early retirement. Historically, early retirement was used as a means to avoid layoffs as the economy restructured. According to the IMF, the rapidly aging population coupled with low unemployment is a greater challenge for the economy than restructuring, and the government should create more job opportunities for older workers and reduce early pension payments. The OECD notes that Austria has one of the lowest actual retirement ages in Europe (age 57.5 for females and age 58.9 for males), and all subsidies that facilitate early retirement should be eliminated. Belgium Employment Terms and Conditions Parents in Belgium may soon be entitled to additional parental leave. The Ministry of Labor is expected to introduce draft legislation to parliament that would extend parental leave to 20 weeks. Since 2009, parents have been entitled to take 15 weeks parental leave from the birth or adoption of a child until the child is age 12. To qualify for parental leave, employees must have at least 1 year of service and give 3 months written notice to the employer. Parental leave is paid by the National Employment Office. Parental leave is granted in addition to 15 weeks maternity leave. If passed, the expanded entitlement could be effective as early as January 1, Belgium s Constitutional Court has given the parliament two years to harmonize the treatment of blue-collar and white-collar employees. The Constitutional Court ruled that the parliament has until July 8, 2013 to harmonize the employment terms and conditions of blue- and white-collar employees, including termination of employment notice periods, waiting days for sick pay, and guaranteed pay. This date is the 20th anniversary of a State Council decision declaring the differences between the two groups of employees constituted discrimination. The Minister of Labor has asked the social partners (unions and employers associations) to resume their work on harmonization. If the social partners cannot reach an agreement on necessary steps, the government will step in to draft legislation. Taxation of Compensation and Benefits In Belgium, Elio Di Rupo, who is responsible for forming a new government, has presented tax measures that would affect employee benefits. The measures are part of a proposed plan to decrease government expenditures and increase revenues. The taxation of company cars would be linked to both the carbon dioxide emissions level and the car s value. Currently, tax treatment is based on emissions levels only. Page 12

13 Capital gains on shares would be subject to a 50% tax if the shares are divested within one year of acquisition, and a 25% tax if divested between one and eight years of acquisition. Currently, the taxable value is fixed at 15% of the value of the underlying share, plus another 1% for every year in excess of a five-year exercise period. The percentage may be reduced by 50% if certain conditions are met. With regard to supplementary pension plans, the basis of the 80% rule would be capped at EUR 82,000. (Employer contributions to employer-sponsored pension plans are not taxable to the employee and are tax-deductible to the company, provided that the sum of statutory and supplementary plan benefits does not exceed 80% of gross annual salary for the previous years.) In related news, the government has published the Act exempting severance pay from tax up to EUR 425 (not indexed). Effective January 1, 2014, this amount will be doubled. (Refer to Aon Hewitt s Global Benefits Legislative Developments June 2011 Page 13.) Bulgaria Employment Terms and Conditions Employment costs may increase for some employers in Bulgaria, effective September 1, The monthly minimum wage will increase from BGN 240 to BGN 270. The Bulgarian government approved an increase in the supplementary payment to survivors pensions. Effective September 1, 2011, a retired spouse is eligible for a supplement to his or her old age pension of 26.5% of the deceased s pension if the spouse is not receiving a survivors pension. Currently, the amount is 20% of the deceased s pension. Czech Republic Employment Terms and Conditions The Czech government has approved a new draft Labor Code. The major changes include: Extending the probationary period from three to six months for managers and key employees; Linking severance pay to length of service, with employees with less than one year of service receiving one month s pay, employees with one to two years service receiving two months pay, and employees with three or more years of service receiving three months pay. (Under the current Labor Code, severance is payable for terminations that are considered layoffs or upon dissolution or transfer of a company. The notice period is at least two months, during which the employee must be paid his or her regular wages; the notice period is three months in case of layoff or dissolution or transfer of a company); and Extending the total length of fixed-term contracts from two to three years. Page 13

14 Estonia Taxation of Compensation and Benefits In Estonia, the parliament passed tax reform bills. Under the bills, the flat tax rate would decrease from 21% to 20%, and the minimum tax threshold would be reduced from EEK 3,196 to EEK 1,920 per year. If signed into law, the changes would be effective in Finland Finland s new government expects to continue the pension reform policies of the previous government. Under these reforms, the effective retirement age would increase to age 62.4 by As of 2010, the effective retirement age is age The government also indicated that the social partners need to find a consensus on extending careers, securing the financing of the earnings-related pension system, and ensuring pension security, including indexation. France Employment Terms and Conditions Under a draft bill, employees in France would receive additional bereavement leave for the death of a child. Currently, employees are entitled to one day of bereavement leave for the death of a child, paid by the employer. The draft bill would extend leave to five days for the death of a child and to ten days for the death of a dependent child. Employers would be required to pay employees for the additional time off. The French government has published a draft decree requiring employers with 50 or more employees to have a gender equality action plan or collective agreement by January 1, The measure requiring a gender equality action plan was included in the November 2010 pension reform legislation. The action plan or collective agreement on gender equality should include the following goals and actions to achieve the goals hiring, training, promotion, qualification, classification, working conditions, pay, and work-life balance. Employers with fewer than 300 employees must work on 2 of these goals; employers with 300 or more employees must work on 3 of the goals. In the absence of an action plan or collective agreement, employers will be fined up to 1% of total payroll for the period not covered. In France, the number of old age pension contributions for individuals born in or after 1955 is likely to increase. Under the 2010 social security reforms, the retirement age for individuals born in 1953 and 1954 increased from age 61 to age 61 and 4 months, and the minimum number of contributions is 41 years and Page 14

15 one-quarter. Measures for individuals born in or after 1955 have not been implemented yet. The Minister of Labor indicated that a ministerial order extending the number of contributions for these individuals will be published before the end of Greece The Greek government s latest austerity package includes social security reforms and tax increases. Overall social security spending will be reduced by EUR 1.09 billion in 2011, EUR 1.28 billion in 2012, and EUR 333 million each year from 2013 to As a result of these expenditure reductions, some benefits will be cut while others will be means tested. The statutory retirement age will increase to age 65; 40 years of contributions will be required for an old age pension; and benefits will be linked to lifetime earnings. With regard to taxation, the tax-free threshold for individual income tax will be lowered from EUR 12,000 to EUR 8,000, and a solidarity levy of 1% to 5% will be assessed on households. VAT rates will increase from 19% to 23%, 11% to 13%, and 5.5% to 6.5%. The austerity plan also includes cuts in public-sector wages, and only one in ten retiring civil servants will be replaced. The government will sell stakes in Hellenic Telecom, Athens Water, Hellenic Petroleum, Hellenic Postbank, ATEbank as well as in ports, airports, and highway concessions. Hungary Employment Terms and Conditions The Hungarian parliament has approved several proposed amendments to the Labor Code. The amendments include: Extending indefinitely the new reference period for hour averaging. Statutory work time would continue to be increased to 44 hours per week only if average work time does not exceed 40 hours for a maximum one-year period; Allowing employers to compensate employees for overtime work with increased vacation time equal to the time worked or pay employees a 50% overtime premium; Granting employees the right to take their vacation time in no more than 2 installments, unless their work is deemed necessary for the national economy. Employers must still allow employees to take 14 consecutive days of vacation; Reducing the length of unpaid childcare leave from 12 months to 6 months; and Extending the probationary period for newly hired employees to 6 months, if the collective agreement permits. In related news, pending legislation would allow the government to set the level of pay increases for employees earning less than HUF 300,000 per month, without consultation with the social partners. The bill is intended to protect the net value of pay following the introduction of the flat income tax. Page 15

16 Effective September 1, 2011, unemployment benefits will be reduced in Hungary. The benefit will be reduced from 120% of the minimum wage to 100% of the minimum wage, and the length of payment will be reduced from 270 days to 90 days. Jobseekers who are offered jobs in public works programs must take them, unless they can give reason for an exemption, or lose their benefits. Ireland Employment Terms and Conditions In Ireland, debate continues over the system for setting industry wage rates. In May 2011, the Minister for Enterprise, Jobs, and Innovation challenged the joint labor committee system (JLC), arguing that it created inflexibilities in the labor market that were leading to unemployment. JLCs set minimum wages and overtime premiums along industry lines. (Refer to Aon Hewitt s Global Benefits Legislative Developments May 2011 Page 14 for additional information.) Following challenges by unions and Labor Party members, Minister Bruton indicated that a bifurcated system would be established going forward employees currently covered by JLC contracts would not see their pay reduced; new employees, however, would be subject to different rules, notably with regard to overtime. In the meantime, the High Court has ruled that the provisions of the 1946 and 1990 Industrial Relations Acts were unconstitutional as they delegate excessive law-making powers on pay and employment conditions to the JLCs without establishing any guiding principles. Italy The Italian government s latest austerity program includes measures affecting old age pensions and health care copayments. The retirement age for the national pension system would be linked to the increase in life expectancy in 2013 rather than in 2014, as previously scheduled, and the retirement age for males and females working in the private sector would be harmonized (Refer to Aon Hewitt s Global Benefits Legislative Developments June 2011 Page 16 for more details.). Also, a solidarity contribution on high pension earners (over EUR 90,000) would be levied in With regard to health care, a EUR 10 fee and a EUR 25 fee would be assessed on specialist medical examinations and non-urgent treatment received in hospital emergency rooms, respectively. Netherlands Employment Terms and Conditions Dutch employers must prepare to comply with amended laws on vacation days. Statutory vacation days that accrue as of January 1, 2012 expire six months after the year in which they were accrued. Employers and employees may establish a longer rollover period by written agreement. Days that accrue prior to January 1, 2012 may continue to be rolled over for five years. Sick employees Page 16

17 are entitled to the full number of statutory vacation days, and they must take vacation days during their reintegration to work. Under proposed changes, Dutch pension funds may have a choice of three governing board models. The three models would include An external board with at least two professional members; A mixed model with a single-tier board with nonexecutive members and at least two external executives; and The current model with equal representation of employers and employees/pensioners, but pensioners would not be permitted to hold more than 50% of the employee seats. The internal supervision and expertise of board members also would be improved. Norway Employment Terms and Conditions Employers and employees in Norway are reminded that new rules related to sick leave are effective July 1, Employers must prepare a follow-up plan with the employee as soon as possible and no later than four weeks after the first day of sick leave. The follow-up plan must be sent to the physician or other sick-leave certifier; it also must be sent to government authorities. A dialogue meeting with the employee must be held within seven weeks of the first day of sick leave. Employers must report to government authorities that a plan has been prepared and a meeting held no later than within nine weeks of the first day of sick leave. If this is not done, the government may impose sanctions on the employer. Portugal Taxation of Compensation and Benefits The Portuguese government s austerity plan includes a special 50% tax on the end of year bonus payments. Employees are entitled to a 13th-month bonus at the time of their annual leave and a 14th-month bonus at Christmas. Commissions and regular incentive bonuses are included in the salary base for the calculation of 13th- and 14th-month bonuses. The austerity plan calls for a 50% tax on the 14th month bonus for employees earning more than the minimum wage. Page 17

18 Russia The Russian government has approved a plan to reform social security contributions. The government plans to reduce social security contributions for most businesses from 34% to 30%, except for specified small businesses that would be subject to a 20% contribution. To make up for the shortfall in social security revenues, the government would assess an additional contribution of 7% to 10% on pay exceeding RUR 45,000 per month. (Refer to Aon Hewitt s Global Benefits Legislative Developments June 2011 Page 16 for additional information on proposed contribution changes.) Slovak Republic In Slovakia, the calculation of old age benefits may change. The government wants to link old age pension increases to increases in pensioners inflation, defined as the year-on-year rise in the price of goods and services that comprise purchases most commonly made by pensioners. Currently, increases in pension income are linked to the year-on-year increase in the average wage and in inflation for the first half of the previous year. If passed, the change would be effective in Spain Spain s Chamber of Deputies has passed the government s social security reform bill. The bill has been sent to the Senate for review. The retirement age would gradually increase from age 65 to age 67; the number of years of contributions for a full old age pension also would gradually increase from 35 to 37 years; and the pension would be based on the last 25 years pay instead of the current 15 years pay. The Chamber of Deputies did introduce some changes. Survivors pensions would equal 60% of the deceased s earnings base or 60% of the earnings base for the purpose of calculating an old age pension. Currently, they are based on 52% of the earnings base. Orphans pensions would be payable until age 21 rather than age 18. Also, individuals with total disability of more than 45% would be permitted to retire at age 56 instead of age 58. Switzerland Taxation of Compensation and Benefits In Switzerland, the Federal Act on the Taxation of Employee Participation will be effective January 1, The Act harmonizes the tax treatment of stock option plans, which varies at the cantonal and municipal levels. Restricted stock will be taxed at 6% less than market value per year, up to a maximum of ten years. Restricted options and options from unlisted companies will be taxed at exercise; unrestricted options will be taxed at market value upon acquisition. Discounted shares will be taxed at their market Page 18

19 value when acquired. Options received in Switzerland but exercised abroad will be subject to an 11.5% federal source tax; cantons may establish their own source tax. Ukraine Ukraine s parliament has passed the social security reform bill. The retirement age for males and females will increase to age 62 and age 60, respectively. In both instances, the increase will be phased in gradually. Pension benefits will be based on the average of the final three years of pay, and the maximum pension benefit will be capped at ten times the subsistence minimum. A second-pillar funded pension system will be established, starting from the Pension Fund s deficit-free year. Individuals up to age 35 will be permitted to participate. Contributions will start at 2%, to be increased to 7%. (Refer to Aon Hewitt s Global Benefits Legislative Developments June 2011 Page 18 and May 2011 Page 17 for additional details on reform proposals). United Kingdom In the United Kingdom, the Finance Act 2011 has now received Royal Assent, confirming the reduction in the annual allowance to GBP 50,000 from April 6, 2011 and the lifetime allowance to GBP 1.5 million from April 6, The Act formally removes the requirement to annuitize members defined contribution pension funds by age 75 and introduces more flexible drawdown. Disguised remuneration provisions, which are relevant to some employer-financed retirement benefit schemes (EFRBS), also apply from April 6, The immediate impact for schemes is the requirement to give effect to the scheme pays option for members who are retiring now and want the scheme to meet their annual allowance charge. This option cannot be used until the associated regulations have come into effect (which is 21 days after they have been laid) but some members may wish to use scheme pays as soon as it is available. Passage of the Act also means that it is no longer possible to retrospectively change a pension input period. In related news, the Pensions Bill appears to have been delayed. Just before the parliamentary recess, amendments were made to provide extra flexibility in the proposed Consumer Price Index legislation for some schemes with capped revaluation in deferment based on the Retail Price Index (RPI); for some schemes with a history of applying RPI-based increases for pensions in payment; for pensions transferred between schemes; and for future pensioners. In planning for automatic enrollment, U.K. employers should not assume that short service refunds will continue for defined contribution (DC) schemes. As part of the preparation for automatic enrollment from next year, the Department of Work and Pensions (DWP) has issued a response to its call for evidence on the regulatory differences between trust-based and contract-based schemes. The most significant difference under consideration was the short service refund where contributions can be refunded for a leaver with less than two years service under a trustbased arrangement. Such refunds could be particularly significant for employers with high rates of staff turnover, when considering the best way of complying with their automatic enrollment obligations. Page 19

20 The DWP intends to issue a full response in the autumn, announcing its final decision on short service refunds as well as looking more broadly at ways to deal with small pots and improve transfers. In the meantime, the DWP, encourage employers not to make their decisions about scheme type [to be used for automatic enrolment] on the assumption that short service rules will continue to exist in their current form. Any changes would be for DC arrangements only. The DWP views changes to defined benefit arrangements as being disproportionate. It is of course possible that the eventual solution will be a compromise, allowing some short service refunds to continue for DC arrangements. The U.K. Department of Work and Pensions (DWP) is consulting on changes to the employer debt regulations, affecting the amount payable when an employer ceases to participate in a multiemployer pension scheme. This follows an informal consultation at the end of last year; in response to feedback, the DWP has made significant changes to its original proposals. The main change is the introduction of a new flexible apportionment arrangement, which DWP proposes will be available from October 1, This would allow all the liabilities of an employer (Employer A) to be apportioned to one or more or the other participating employers, provided certain conditions are satisfied. Employer A would no longer be treated as an employer, and therefore, a debt would not be triggered when Employer A subsequently ceases to employ active members. The arrangement also can be entered into after Employer A ceased to employ active members, although it will not be available where the cessation occurred before October 1, The main conditions are: The trustees are satisfied that a funding test is met (similar to the existing scheme apportionment arrangement option); A legally enforceable agreement is in place to transfer responsibility for the liabilities; Employer A and the other participating employers that are taking on the liabilities all agree in writing, as must the trustees; and The scheme is not in a Pension Protection Fund assessment period and the trustees are satisfied that entering assessment is unlikely in the next 12 months. One attraction over the existing options is that a flexible apportionment arrangement would avoid the need for a certification of the deficit or the exiting employer s share of the debt on that occasion. The selected employer or employers would simply step into the shoes of Employer A. Further flexibility also is proposed for grace periods where an employer has ceased to employ an active member for only a temporary period and the employer proposes that a debt is not triggered. Trustees would have discretion to extend the maximum grace period from the current 12 to 36 months and employers would have 2 months, rather than 1, to make the necessary notification to trustees. The U.K. Debt Management Office (DMO) has now launched a consultation on whether to issue gilts linked to the Consumer Price Index (CPI). In July 2010, the government announced that it intended to use the CPI, rather than the Retail Prices Index (RPI), in determining future statutory increases and revaluation for occupational pensions. The U.K. pensions sector is a key investor in index-linked gilts, and the government wishes to understand how the shift to CPI will affect schemes use of index-linked gilts for Liability Driven Investment. It also seeks views on how CPI/RPI hedging products might emerge as an alternative liability management tool to CPI-linked gilts. The government is aware that the move to the CPI affects pension schemes to differing degrees. Some schemes will be largely unaffected by the change, but others pay only the statutory minimum increase or wish to change to this approach. Page 20

21 The government will compare the expected benefits, costs and risks of issuing CPI-linked gilts for itself as issuer and for the gilt market. In particular, it will assess the case for the launch of new CPI-linked gilts with reference to: The debt management objective (of minimizing the long-term costs of meeting the government s financing needs, taking account of risk and consistency with debt management policy); The impact on liquidity and more generally the impact on the gilt market: the government is not inclined to issue a new type of debt instrument that is likely to appeal only to a very limited group of investors (or for a temporary period). Similarly the consultation highlights the potential risks of introducing CPI-linked gilts, including risks of market fragmentation and damage to liquidity; Likely demand: the consultation queries the extent to which potential investors would be prepared to pay a premium for CPI-linked gilts, and seeks views on what maturity dates would be required; and The cost and resource required to issue the new gilts compared with the potential size of demand. The consultation also discusses the possibility of a change in CPI methodology (for example inclusion of owner-occupier housing), and asks whether this would affect either the relative demand for CPI-linked gilts compared with RPI-linked gilts or the timing of the introduction of CPI-linked gilts. The consultation closes on September 22, 2011, and following that, the DMO will publish a response to the comments received. If the decision is made to issue CPI-linked gilts, the DMO would allow sufficient lead time so that the market can prepare, and seeks views on what such a lead time should be. Page 21

22 Asia-Pacific Page 21

23 China (PRC) Employment Terms and Conditions Taxation of Compensation and Benefits Hong Kong SAR India Issues for Expatriate Employees Malaysia Employment Terms and Conditions Philippines Health Care System South Korea Issues for Expatriate Employees Vietnam Employment Terms and Conditions Issues for Expatriate Employees Page 23

24 China (PRC) Employment Terms and Conditions China s Ministry of Human Resources and Social Security expects the minimum wage to increase by an average rate of 13% over the next five years. The minimum wage is expected to be over 40% of average income of Chinese nationals living in urban areas. In related news, the Beijing municipal government recently released wage guidelines for employers engaging in collective negotiations this year. According to the Beijing Bureau of Human Resources and Social Security, employers should increase pay between 5% and 10% to accommodate changes in the cost of living. Taxation of Compensation and Benefits The Standing Committee of China s National People s Council has approved reforms to individual income tax. Despite public opposition, the legislature approved only a CNY 1,000 increase in the standard monthly deduction to CNY 3,000. However, the lowest marginal tax rate will decrease from 5% to 3%. The number of tax brackets has been reduced from nine to seven. The new tax brackets and rates will be: up to CNY 1,500, 3%; CNY 1,500 to CNY 4,500, 10%; CNY 4,500 to CNY 9,000, 20%; CNY 9,000 to CNY 35,000, 25%; CNY 35,000 to CNY 55,000, 30%; CNY 55,000 to CNY 80,000, 35%; and over CNY 80,000, 45%. (Refer to Aon Hewitt s Global Benefits Legislative Developments June 2011 Page 23 for additional information on the tax reform.) Hong Kong SAR In Hong Kong, the minimum contribution salary for the Mandatory Provident Fund will increase from HKD 5,000 to HKD 6,500, effective November 1, The Legislative Council passed the amended MPF Schemes Ordinance at the end of June Action has not yet been taken on an increase in the maximum level of relevant income. (Refer to Aon Hewitt s Global Benefits Legislative Developments June 2011 Page 23 for additional information.) India Issues for Expatriate Employees Expatriates will have to provide salary information to Indian immigration authorities when applying for or renewing a visa. Salary information must be provided in Indian rupees as well as the employee s home currency. Monthly and annual figures must be provided. The Immigration Office has issued a form for employers and employees to complete, specifying how salary must be broken down. Page 24

25 Malaysia Employment Terms and Conditions The National Wages Consultative Council Bill, which would establish a minimum wage in Malaysia, has been sent to parliament. Under the Bill, a National Wage Council, consisting of a minimum of 23 members, would be empowered to conduct studies of the minimum wage and make recommendations to the government on the level of wage, which would vary by industry, type of employment, and region. The Council would consist primarily of representatives from employers associations, unions, and government agencies. However, the chairman, deputy chairman, and at least 5 other members must not be a civil servant, employer, or union member. Proposed minimum wages have not been published. Philippines An increase in the social security contribution rate and ceiling may be postponed until 2013 in the Philippines. The Social Security System (SSS) Board of Directors has not yet decided when to implement an increase. The total contribution rate was expected to increase from 10.4% to 11.0%, thereby raising the employer and employee contribution rates to 7.37% and 3.63%, respectively, and the monthly contribution ceiling was expected to increase from PHP 15,000 to PHP 20,000. As a result of the delay, the proposed increase may be a full percentage point in 2013 and every two years thereafter. In the Philippines, the implementation of Personal Equity Retirement Accounts (PERAs) is likely to be further delayed. Officials from the Bureau of Internal Revenue indicate that implementing regulations have been delayed due to difficulties in defining Overseas Filipino Workers (OFWs). Once PERAs have been implemented, OFWs will be permitted to contribute two times the amount individuals working inside the country may contribute. Currently, the maximum annual contribution is scheduled to be PHP 100,000 for individuals and PHP 200,000 for couples. Contributions and account earnings will be tax free provided the funds are withdrawn when a participant is age 55 or older. Individuals will receive a tax credit of 5% of their PERA contributions. In July 2008, the PERA bill became law. It was expected to be effective in PERAs are privately managed individual retirement accounts, similar to 401(k) accounts in the United States. The Philippines Social Security System (SSS) announced plans to launch a voluntary provident fund for long-term retirement savings. Employees up to age 55, the self-employed and overseas Filipino workers would be permitted to participate. These individuals must have paid in full their social security contributions during the six months prior to enrollment in the provident fund. The maximum annual contribution is PHP 100,000. According to SSS officials, 65% of provident fund savings are intended for retirement and total disability, 25% for medical costs, and 10% for general purpose. SSS will guarantee earnings based on the fiveyear Treasury bond rate for retirement and disability; the remaining funds would earn at the 364-day Treasury rate. At retirement, provident fund savings may be withdrawn as a lump sum, a monthly Page 25

26 pension, or a combination of the two. The voluntary provident fund is expected to launch in September The government has not indicated whether these savings will receive favorable tax treatment. Health Care System Employees in the Philippines continue to be entitled to hospitalization coverage with three months of contributions in the last six months. The eligibility requirement was scheduled to change to 9 months of contributions in the 12 months preceding hospitalization as of July 1, The Philippine National Health Insurance Corporation (PhilHealth) suspended implementation of the change. South Korea Employers in South Korea may wish to review the impact of recently approved amendments to the Employee Retirement Benefit Security Act (ERBSA) on their pension plans. Under the amended Act, employees will be able to participate in both defined benefit (DB) and defined contribution (DC) plans. Employers will be permitted to determine the allocations to the two plans. Currently, employees can participate in only one plan, even if the employer offers both. The Individual Retirement Account (IRA) will be replaced by an Individual Retirement Pension (IRP). Benefits must be rolled over to an IRP, except under specified conditions, such as terminating employment at age 55. Under the current system, retirement benefits are paid to employees and transferred to an IRA upon the request of the employee. The amended Act also restricts severance pay plan withdrawals to specified hardship conditions. With regard to DC plans, multiple employers will be permitted to participate in a plan based on a single plan document. To date, each legal entity must have its own plan documents and contracts. DC account balances may be transferred directly to an IRP (currently, they must be cashed out first). Employers will be required to pay interest on any delayed contributions and deposit this amount into employees individual accounts. The amended Act also includes provisions specific to DB plans. One hundred percent of benefits are paid to an IRP from DB assets. If DB assets are insufficient to pay the full benefit, employers will be required to make up the difference. If the funding ratio is over 150%, the employer may request the return of assets over 150% (currently, assets cannot be returned to an employer). If the funding ratio falls below the legal requirement (60%), employee representatives must be notified. The National Assembly approved the amendments on June 30, They will be effective July 1, Implementing ordinances must still be issued. Issues for Expatriate Employees In South Korea, all workplaces must have departure guarantee insurance for their foreign workers whose employment contracts are effective on or after August 1, Effective December 1, 2010, the retirement benefit system was extended from workplaces with at least five employees to all workplaces. The departure guarantee insurance program ensures that retirement benefits are paid before the department of the employee. It applies to nonprofessional employees (those holding E-9 or H-2 visas). Page 26

27 Vietnam Employment Terms and Conditions Employment costs may increase for some employers in Vietnam. The Ministry of Labor announced that it is drafting legislation to increase the minimum wage as of October 1, The minimum wage varies by region or zone. In Zone 1, which includes Hanoi, Ho Chi Minh City, and Ha Dong City, the monthly minimum wage would increase from VND 1.55 to 1.9 million; in Zone 2, from VND 1.35 to VND 1.73 million; in Zone 3, from VND 1.17 to VND 1.55 million; and in Zone 4, from VND 1.10 to VND 1.40 million. Issues for Expatriate Employees Employers in Vietnam must be prepared to comply with new regulations when recruiting foreign employees. Decree 46 of 2011 revises Decree 34 of 2008 on the Employment and Administration of Foreigners Working in Vietnam. Under Decree 46, employers must advertise for a Vietnamese employee in central and local newspapers. Any work permit extensions must be accompanied by a training contract signed by the employer and a Vietnamese person who will be trained to replace the expatriate employee. Previously, it was sufficient for employers to state the reasons why a national employee had not been trained. Decree 46 is effective August 1, Page 27

28 Middle-East Page 45

29 La Israel Health Care System Saudi Arabia Employment Terms and Conditions Issues for Expatriate Employees United Arab Emirates Employment Terms and Conditions Page 29

30 Israel Health Care System Israel s National Insurance System (NIS) will provide dental coverage to children up to age 14. Effective July 1, 2011, children up to age 10 receive dental care as part of the NIS basket of services. The age limit will increase to age 12 in 2012 and age 14 in Previously, only children up to age 8 were covered by the NIS plan. Parents are advised that supplemental insurance is no longer necessary for these children. Saudi Arabia Employment Terms and Conditions Working time in the private sector may be reduced in Saudi Arabia. Officials from the Ministry of Labor have indicated that the workweek may be reduced from 48 to 40 hours; the maximum number of hours of work per days would continue to be 8 hours. It is not yet known when action will be taken. Issues for Expatriate Employees Employers in Saudi Arabia have until November 26, 2011 to comply with new Saudization quotas. The Ministry of Labor will begin taking punitive measures against companies that do not meet their quota of national employees in November. Previously, it was reported that employers were required to comply as of September 10, The punitive measures include the nonrewenal of foreign employee visas or the imposition of a six-year cap on the length of visas. (Refer to Aon Hewitt s Global benefits Legislative Developments Page 28 for additional information.) United Arab Emirates Employment Terms and Conditions Manual workers in the UAE can now change jobs without their employer s permission. These employees must have at least a secondary school degree, and the new job must offer at least the minimum wage for their level of qualification (AED 5,000 if they have completed secondary school, AED 7,000 with an associate s degree, and AED 12,000 with a bachelor s degree). Skilled employees have been permitted to change jobs without a No Objection Certificate from their employer since January Page 30

31 Latin America and the Caribbean Page 49