Académique Documents
Professionnel Documents
Culture Documents
Contents
1. Mercer/Marsh Global Presence..................................................................................................................................................................................................... 2
4. Definitions................................................................................................................................................................................................................................... 11
Order Introduction to Benefit Plans Around the World and its companion publication, Introduction to Compensation Plans Around the World, from www.mercer.com/bpaw.
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Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World
September 2009
FINLAND
NORWAY SWEDEN
ESTONIA
ISLE OF MAN DENMARK LATVIA
CANADA
UK GERMANY LITHUANIA RUSSIA
IRELAND NETH. POLAND UKRAINE
CHANNEL IS. CZECH & SLOVAK REPS.
BELGIUM LUX. AUSTRIA KAZAKHSTAN
FRANCE HUNGARY
ROMANIA
SWITZERLAND CROATIA SLOVENIA
PORTUGAL MONACO ITALY BULGARIA
UNITED STATES SPAIN TURKEY
GREECE AZERBAIJAN JAPAN
MALTA
TUNISIA ISRAEL KOREA
BERMUDA
MOROCCO CHINA
BAHAMAS EGYPT SAUDIA ARABIA
CARIBBEAN BAHRAIN HONG KONG
TURKS & CAICOS
MEXICO DOM. REP. US VIRGIN IS. MALI UAE TAIWAN
HONDURAS PUERTO RICO
GUATEMALA CAYMAN IS. BARBADOS ST. LUCIA BURKINA FASO OMAN INDIA THAILAND
JAMAICA GRENADA SENEGAL CHAD PHILIPPINES
EL SALVADOR PANAMA TRINIDAD GHANA NIGERIA
NICARAGUA GUYANA VIETNAM
COSTA RICA ANTILLES BENIN CENTRAL AFRICAN REP. SRI LANKA
VENEZUELA MALAYSIA
COTE D’IVOIRE CAMEROON
COLOMBIA UGANDA SINGAPORE
GABON KENYA
ECUADOR
TANZANIA
INDONESIA
PERU BRAZIL PAPUA NEW GUINEA
MALAWI
ZAMBIA
BOLIVIA ZIMBABWE
MOZAMBIQUE FIJI
BOTSWANA MADAGASCAR
AUSTRALIA
SWAZILAND
CHILE NAMIBIA SOUTH AFRICA
PARAGUAY Fifth Quadrant (Mercer Affiliate)
URUGUAY
ARGENTINA
NEW ZEALAND
Mercer
Marsh
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Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World
September 2009
2. Contact Information
For further information, please contact your existing Mercer consultant and/or any of our global report team members.
Local Authors: Names and e-mail addresses are listed in each Country Snapshot.
Executive Sponsors
Barbara Marder (Barbara.Marder@mercer.com)
Robyn Cameron (Robyn.Cameron@mercer.com)
Senior Editors
Heli Olkkonen (Heli.Olkkonen@mercer.com)
Celine Ng Tong (Celine.NgTong@mercer.com)
For more information on Mercer’s Global Benefits Legislative Update (a monthly report), contact Michael.Abramson@mercer.com.
Thank you to Mercer colleagues (in alphabetical order) who gave generously of their time for content development and guidance: Alistair Peck, Betty Blue,
David Newman, Kay Leach, Mitch Potter, Molly Zangrilli, Philip Grabfield, Sally Shaw, Shufang Yeo, Stephanie Poe, Steven Faigen, and Tracey Jones.
Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer consultants help clients design and manage health, retirement and other
benefits, and optimize human capital. The firm also provides customized administration, technology and total-benefit outsourcing solutions. Mercer’s investment services
include global leadership in investment consulting and multimanager investment management. Mercer’s global network ensures integrated, worldwide solutions for clients
that wish to establish global policies and procedures while allowing for the flexibility to accommodate local cultural, legal and regulatory requirements. The firm’s locally
based professionals are also available to serve midsize companies and to address country-specific issues and opportunities.
Marsh is the world leader in delivering risk and insurance services and solutions to clients. It provides global risk management, risk consulting, insurance broking, alternative
risk financing, and insurance program management services for businesses, public entities, associations, professional services organizations and private clients. Marsh is
organized by client, industry and risk categories to facilitate the global delivery of highly specialized products and services covering a wide spectrum of risks.
3
Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World
September 2009
3. Executive Summary
3.1. Employee Benefits – Top Five Global Employer Challenges
Challenges Synopsis
React to changes In the short-term, reform is being contemplated in public healthcare policy in several countries around the world, e.g., the US, China and
In government policy Germany. Employers can expect that such reform will have a significant knock-on effect on the programs they provide.
A number of public policy changes have been enacted to help companies respond to the recession and decline in the capital markets, e.g.,
minimum funding standards for retirement plans have been relaxed in several countries, although preconditions such as increased disclosure to
participants are often required. Companies should examine the implications of these changes on funding strategy in the short- to medium-term.
Longer-term, it is likely that governments will continue to shift cost from the public sector to the private sector as they grapple with the impact
of ageing societies.
Balance the response to Companies are relying on tried and tested cost control tactics to weather the current recession. Citing some examples from the Mercer May
the recession with long- 2009 global survey report, Leading Through Unprecedented Times 2.0:
term positioning 27% of companies have either already reduced contributions to DC plans or plan to do so
10% of companies have cut back or stopped accruals in DB plans
58% of companies are likely to increase employee contributions for health coverage for the upcoming plan year
Many companies are also introducing strategic innovations to benefit programs, that may help with cost control in the longer term and may also
be positively viewed by employees, for example:
29% have recently added wellness programs and a further 38% reported that they are likely to do so in the near future
Companies are reviewing the introduction of choice to allow different categories or generations of employees tailor their own benefit
packages, e.g., through the implementation of a flexible benefits program
Companies are assessing whether the level of certain benefits provided can be linked to profitability, e.g., through the introduction of a
profit-sharing component in a DC plan
Companies are also looking to implement other cost control initiatives that may be less visible to employees, e.g., by achieving global
economies of scale through consolidation of third party vendors, pooling of insurance risk etc.
Job security has supplanted the impact on retirement plan investments as employees’ primary concern since the first version of the survey
conducted in Q4 2008. Employees appear to be ready to become part of the solution, at least in the short-term, to ensure the viability of the
company. Nevertheless, it is likely that the recession has raised the profile of retirement, health and risk benefit programs among employees.
Companies will need to take this into account as they formulate reward strategies for the recovery and beyond.
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Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World
September 2009
Challenges Synopsis
Shift from defined benefit The trend from DB to DC has been generally accompanied in lock-step by a trend to lower employer-provided retirement benefits. In many
(DB) to defined countries, market-average DC plans provide significantly less retirement income than market-average DB plans.
contribution (DC) The recent turmoil in the capital markets has highlighted some of the pitfalls of providing lower retirement benefits through a DC plan. For
example, the generation of employees close to retirement may not be able to afford to retire as anticipated, leading to workforce planning
issues, particularly in mature industries where employers had been planning to turn over a significant portion of the workforce through
retirement over the next five to ten years.
Many companies have increased their focus on DC plan management, often on a global basis, with a view to ensuring cost efficiency, and
ensuring that employees are empowered to make good decisions relating to retirement:
The Mercer global survey report, Leading Through Unprecedented Times 2.0 indicates that 33% of companies have already reviewed
third-party fees relating to DC plans and a further 43% plan to do so in the near-term
Similar percentages of employers plan to review the investment fund line up available, including the default options and lifecycle
funds
85% of companies indicated that the financial education of DC participants was a priority.
Understand the cost and A significant portion of companies are intensifying efforts to develop a clear understanding of the cost and risk drivers embedded in retirement
risk drivers and benefit programs.
This will enable companies to adopt targeted solutions to mitigate cost and risk drivers that can be controlled, e.g., by encouraging behavioral
change through a global health management program or by adjusting investment strategy to neutralize certain uncompensated risks being
carried in a retirement plan.
Over 70% of companies have identified risk identification and mitigation as a priority in the context of retirement plans.
23% of companies plan to review the cost base for health and welfare plans, e.g., through dependent eligibility audits.
Improve global The increased visibility of retirement and benefit programs at board and senior management level has encouraged a trend toward increased
benefits/governance global oversight over the past number of years. As multinational companies often have less resource available on the ground to manage these
programs locally and less headquarters’ resource available to oversee them centrally, the importance of having a robust global governance
framework is greater today than it has ever been. Such a framework includes both the structure and the supporting processes needed to achieve
the desired level of central oversight and frequently includes written policies on design, funding and investment, clear delegation of authority
and assignment of responsibility related to benefit programs, and a defined approach to monitoring and mitigating risks.
The Financial Management of Retirement plans 2008 multinational survey report confirmed that one of the main drivers for increased global
governance was the need to better manage financial risk and volatility and to minimize future surprises.
Historically, the absence of central reporting requirements on health & welfare plans globally resulted in a multi-local decision-making
approach. However, there has been a marked increase in the appetite of multinational employers to establish global guiding principles for the
design, placement and ongoing management of health and welfare plans, and to ensure adherence to these guiding principles.
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Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World
September 2009
0 20 40 60 80 100 0 20 40 60 80 100
DB DC Hybrid
ASIA PACIFIC W. EUROPE
Prevalence Among Multinational and Local
Leading Companies (Approximate %) New Zealand
Austria
0 20 40 60 80 100 Pakistan
Belgium
AMERICAS Philippines
Denmark
Argentina Singapore
Brazil Finland
South Korea
Malaysia UAE UK
Typical hybrids – Brazil: Minimum (guarantee) benefit is provided. Canada, Ireland, New Zealand and UK: DB for existing employees, DC for new hires. France, Luxembourg: Both DB and DC plans. Germany: DC plan with guaranteed interest, insured plans
(Pensionskassen, or “direct insurance”) or reinsured DB plan with defined contributions. Japan: Large companies with new DB plan tend to use cash balance design rather than traditional formula linked to final pay. Mexico: DB to cover termination indemnity and DC top-
up. Netherlands: DB plans with DC accounting. Pakistan: Large numbers of employers provide for all employees both a gratuity (DB) and a provident fund (DC); 14% of employers also provide supplementary pension for managers only. Philippines: Mandatory minimum
under Labor Code is guaranteed. Spain: Pure DC plan for all employees, plus a supplemental DB plan for managers. Sweden: ITP DB plan for salaried employees and SAF-LO DC plan for hourly. Switzerland: Accumulation of contributions with minimum interest rate
guaranteed on mandatory retirement savings. USA: DB plans with DC-like features such as cash balance or retirement shares.
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Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World
September 2009
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Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World
September 2009
3.4. New Laws Requiring Employer Action (August 2008 – July 2009)
This list is not intended to be an all-inclusive summary. More updates are available in the Country Snapshots section of this report and also in Mercer’s Global
Benefits Legislative Update, a monthly report.
Country New Laws (August 2008 – July 2009) Action Required/Impact on Employers
Argentina Significant change to the financing of private health insurance. Employers must now contribute based on uncapped salary. Health care
Employer contributions remain at 6%. However, the salary cap costs will likely rise.
(previously ARS 4,800/month) has been eliminated.
France The table of legal dismissal indemnities has changed. The new table Employers must adopt the new minimum tables when dismissing or
starts at one year of service and provides an indemnity equal to one- retiring employees.
fifth times monthly salary from one to 10 years of service and one-third
times monthly salary after 10 years.
India All foreign workers in India from countries with which India has not Employers will have to make a 12% contribution for nonexcluded
signed a social security agreement (SSA) – as well as all Indians employees.
working for an Indian company in a country with which India does not
have a SSA – must contribute 12% of applicable salary to the
Employees’ Provident Fund. There is no exemption for foreign workers
earning more than INR 6,500 per month.
India New National Pension Scheme (NPS) launched. The scheme is Consider use of NPS for supplemental retirement saving.
available to all citizens. It offers investment and provider choice.
Ireland Amendments to the Pensions Act 1990 change priority orders on Employers must ensure compliance with amendments.
windup and extend the Pensions Board powers in relation to reducing
benefits. A pension insolvency scheme will also be introduced.
Poland Changes to standard maternity leave, effective January 1, 2009, and Employers must comply with the new standards when granting
additional maternity leave, effective January 1, 2014. Paternity leave maternity/paternity leave.
also extended.
Russia Government incentives introduced to encourage saving for retirement. Employers must provide payroll deduction facilities if requested.
Employees can make additional voluntary contributions to the second- Employers can consider using the system to enhance retirement benefits
pillar pension and receive a matching contribution from the for employees.
government. Employees can elect to contribute via payroll.
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Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World
September 2009
Country New Laws (August 2008 – July 2009) Action Required/Impact on Employers
Taiwan New early retirement clause in the Labor Standards Act permits Employers should amend policy documentation and also reflect the
retirement at age 60 with 10 years’ service. change in financial accounting.
UK Increases to pensions for early leavers in defined benefit schemes can Employers should check whether the change is permitted under the
be capped at 2.5% p.a. (compound) from April 6, 2009. scheme rules. Employee consultation may be required.
UK Pensions Regulator statement issued to assist trustees and employers in No employer action required. Companies should be aware of the
dealing with contribution affordability. statement when negotiating.
Pensions Regulator has power to fine employers that fail to comply with Employers must be sure to meet the necessary requirements, or they
employee consultation requirements. face a penalty of up to GBP 50,000.
UK Proposed changes to UK pension tax relief for those earning more than Consider informing affected individuals of the changes, particularly
GBP 150,000 have been announced effective April 6, 2011. those intending to make additional contributions in the current tax year.
Transitional rules apply from April 22, 2009.
UK Changes to “failure score” element of PPF levy formulae could affect Monitor D&B ratings in the period up to March 2010 to ensure no
costs. surprises.
USA Auto-enrollment regulations of the Pension Protection Act (2006) Employers must comply with the rules that apply retroactively.
issued.
USA New restrictions on executive remuneration and benefits for companies Employers must take action to comply with new guidance. Different
that receive government funding. restrictions apply depending on the level of funding.
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Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World
September 2009
4. Definitions
This report covers all benefits except business travel accident, severance and workers’ compensation. Definitions of frequently used terms are as follows:
11
Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 12
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
Is Coverage Part of Another Plan? No. Is Coverage Part of Another Plan? No.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 13
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 14
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 15
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
% of supplementary Included in retirement plan: Death – Yes. Disability – Varies. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – No.
plans Vesting benefit: Immediate or after two years of plan membership. VESTING Vesting of employer contributions: Generally after two years of plan
DB: 60% membership.
DC: 10% May be required (50% of plans); generally 3% – 7% of salary. EMPLOYEE May be required; generally 3% – 7% of salary.
CONTRIBUTION
Hybrid: 30%
Full cost of plan less any employee contributions. EMPLOYER A match of employee contributions up to a maximum, or a fixed
Hybrid means
CONTRIBUTION contribution, or both.
typically DB for
existing employees, Large employers: Trusts. Medium and small employers: Insurance FINANCING Investment with insurance or trust company.
DC for new hires policies or trusts.
Choice of annuity or lump sum. FORM OF PAYMENT Choice of annuity or lump sum.
Executive-only Alternatives: Sum of DB and DC, maximum DB or DC, flexible plans. HYBRID ALTERNATIVES Alternatives: Sum of DB and DC, maximum DB or DC, flexible plans.
plans
Valuations: Required every three years. Some provinces require OTHER Employee investment choice: Yes.
Common, especially annual valuations when plans are less than fully funded.
among larger
Local accounting standard: CICA 3461.
companies
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Current legislative environment results in asymmetry with respect Employers are considering ways to improve retention features Phased retirement arrangements are allowed in some
to surplus and deficits in DB plans. and reduce costs in DB plans, such as reducing early retirement jurisdictions. A partial pension may be drawn while an employee
Companies wanting to make pension asset transfers, either in subsidies. continues to accumulate pension credit, working part-time.
the context of sale or purchase activity, or for the purpose of Interest in phased retirement programs. Newfoundland and Nova Scotia now require full funding of
rationalizing or harmonizing their own plans, face uncertainty Trend toward DC plans continues. pension plans on windup. Additionally, employers who leave the
after a series of court decisions. province of Nova Scotia must fully fund their plans.
Tax treatment of DC plans is more advantageous for younger
Potential inadequacy of DC benefits due to low-interest-rate Temporary funding relief due to the recent market downturn is
employees than that of DB plans; tax treatment is neutral for
environment. older employees. available in most jurisdictions. Level of relief varies by
jurisdiction.
Smaller companies may provide capital accumulation plans to
avoid minimum provincial pension standards. These include
registered retirement savings plans (RRSPs), deferred profit
sharing plans (DPSPs) and employee profit sharing plans
(EPSPs).
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 16
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 17
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 18
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 19
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 20
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
Is Coverage Part of Another Plan? No. Is Coverage Part of Another Plan? No.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 21
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
Executive-only Full cost of plan. EMPLOYER 2% to 5% of base salary, usually on a matching basis (25% to 100%
plans CONTRIBUTION match of employee contribution).
Not prevalent. Those Most multinationals use trust funds. Some companies use book FINANCING Most multinationals use trust funds (through banks), but record
that exist are non- reserve or stockbroker investment contracts. keeping is normally performed by stockbroker house.
qualified plans if not Lump sum. FORM OF PAYMENT Lump sum.
offered to all DB to cover the termination indemnity at retirement, and a DC on HYBRID ALTERNATIVES DC to cover the termination indemnity with shortfalls covered through
employees top. a guarantee (DB), and a DC on top.
Valuations: Annually. Local accounting standard: NIF D-3 – The local OTHER Employee investment choice: Not common during first years. If DC is
accounting standard is converging to the international accounting used to cover termination indemnities, the guarantees (shortfalls) are
standards (IAS 19), and this new methodology will be applicable measured through an actuarial valuation.
from January 1, 2008.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Plan assets must be 100% invested in Mexican registered Trend from DB toward hybrid plan (for example, DB to New IETU tax became applicable on January 1, 2008. The law establishes a
securities, with a minimum of 30% in government bonds. cover the termination indemnity at retirement and a DC new requirement for companies to calculate taxes. It is called “single-rate
Public companies are not allowed to invest more than 10% of the on top). business tax” (impuesto empresarial a tasa unica, or IETU), which is a flat tax
fund in their own equities. rate (16.50% in 2008, 17.00% in 2009, 17.50% from 2010). During the
transition period (2008–2010), companies will have to calculate IETU and ISR
As a result of the changes to the income tax law (LISR), effective
(current tax: 28%) and will pay the higher of the two amounts. The IETU does
December 2006, tax deduction of combined employee and
not consider the payment of insurance premiums and contributions to pension
employer contributions to both DB and DC plans has now been
plans as tax-deductible expenses. But there is some ambiguity in the
limited to 12.5% of pay.
legislation wording, which is being analyzed by tax advisers. The law also
changes the way employee taxes are calculated. Further regulations are still
expected to be issued to clarify the new law. As this law changes methodology
for calculating the tax on employee pay, we recommend that companies inform
employees about this change and its impact on their net earnings. The new
law will have a significant impact in some cases. Companies will need to
review the impact of the IETU and may be subject to higher taxes.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 22
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 23
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 24
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 25
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 26
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 27
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 28
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
How Adequate Are Mandatory Benefits in Meeting Employee Plan Eligibility: All employees. Benefits Provided Under Workers’ Compensation: Lump sum that
varies by state (for example, AUD 325,000 in New South Wales).
Needs? Provides basic medical and emergency cover only. Plan Financing: Insurance policy.
Approximately 40% of the population has supplementary private Plan Eligibility: All employees.
How Adequate Are Mandatory Benefits in Meeting Employee
medical coverage. Needs? Provides a basic level of coverage only, particularly for Plan Financing: Insurance policy.
long-term disability. How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Death benefit is adequate for many employees, but not
at executive level. Not payable if death is not work-related.
Typical Typical Typical
Plans: Medical. Plans: Total permanent disability (TPD), long-term disability Plans: Death benefits through retirement (superannuation) fund.
Prevalence: Less than 10% of multinational and local leading (LTD) and short-term disability (STD) as riders to retirement Prevalence: 99% of multinational and local leading companies.
(superannuation) fund.
companies. Plan Eligibility: All permanent employees. Casual employees will
Plan Eligibility: Varies by organization. Given the very low Prevalence: 95% of multinational and local leading companies.
often be covered.
prevalence, there is no typical situation. Plan Eligibility: All permanent employees. Benefits Provided: For all causes of death. DC plan: Account
Dependent Coverage: Yes. Benefit Description: TPD – Lump sum equal to death benefit. balance plus an insured amount, which is often flexible. DB plan:
LTD – Salary continuance at 75% of salary until age 65. STD – Prospective lump-sum retirement benefit at age 65.
Benefit Description: Hospitalization, ambulance services, dental,
vision, and other ancillary benefits such as physiotherapy and Salary continuance at 75% of salary for two years. Employee Contributions: Depends on plan design. DC plan –
chiropractic. Employee Contributions: Where provided through retirement Employee bears the total cost by deduction from the account
Employee Contributions: Employees commonly pay 100%. plan, same contributions as for death benefits. balance. DB plan (where applicable) – Employee contribution is
fixed; employer pays balance of cost.
Plan Financing: Insurance policy. Plan Financing: Typically provided through retirement plan. Some
long-term salary continuance policies may be provided through Plan Financing: Typically provided through retirement plan.
Is Coverage Part of Another Plan? No. an insurance policy held by the company. Is Coverage Part of Another Plan? Yes, the retirement plan.
Is Coverage Part of Another Plan? Yes, the retirement plan.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Medical inflation rate (2008): 4.8%. From July 1, 2010, the 30% tax rebate on private medical
Choice-of-fund legislation makes it difficult for employer to insurance premiums will be subject to an income test. At the
same time, the Medicare Levy Surcharge (for those without
provide consistent coverage to all employees. Death and
disability coverage is generally provided most tax-effectively via a private insurance) will increase to up to 1.5% for high-income
earners.
retirement plan. However, employees may choose to join a plan
other than the employer plan.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 29
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
% of supplementary Vesting benefit: No market data at this time. VESTING SRP: Typical vesting schedule is first vesting after three to five years
plans of service and fully vested after five to 10 years of service. Vesting
schedule is applied to employer contribution only.
DB: 15%
EA Plan: No typical practice yet; no vesting regulation.
DC: 80%
Not required. None. EMPLOYEE SRP: Not required. If required, 5% of salary or less. EA Plan:
Hybrid: 5% CONTRIBUTION Required. Company + employee contributions not to exceed 1/6 of
gross payroll of previous year.
Executive-only Full cost of plan. EMPLOYER SRP: 5% – 10% of salary.
plans CONTRIBUTION EA Plan: Company contributions not to exceed 1/12 of gross payroll
Not prevalent of previous year. Shanghai: Not to exceed three times average
contribution for all employees, unless agreement is made among the
employer, employees and government.
Book reserve. FINANCING SRP: Insurance policy (33% of plans); book reserve (22% of plans);
EA Plan (33% of plans); trust-based savings plan (12% of plans).
Lump sum. FORM OF PAYMENT SRP: Lump sum. EA Plan: Choice of annuity or lump sum.
Cash balance plans. HYBRID ALTERNATIVES Cash balance plans.
Valuations: No requirement. Local accounting standard: PRC GAAP. OTHER Employee investment choice: Limited choice.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Current EA legislation does not provide guidance on tax relief for The government issued legislation in May 2004 on a DC In Shanghai, pre-EA supplementary pension assets managed by
employee contributions. voluntary occupational retirement scheme, termed Enterprise the city’s social security bureau were transferred to the appointed
Pension assets are managed in an immature and undeveloped Annuity (EA). There are now 58 licensed EA service providers. and designated EA provider, Changjiang Pension Insurance
Of multinationals in China surveyed in 2007 by Mercer, 39% are Company; there is a lock-in period with Changjiang until
capital market.
December 31, 2009.
offering some kind of supplementary pension plan. In 2002, the
equivalent statistic was 20%. There is a strong preference by Currently, the Chinese government is exploring tax deferral
multinationals in China for an Enterprise Annuity retirement plan. policies for supplementary pension plans and personal retirement
More than 60% of surveyed leading multinationals that still do not savings.
have any supplementary pension plan will implement an EA plan
in the next five years, and the EA taxation situation was identified
as the most critical factor in the decision process.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 30
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 31
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 32
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 33
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 35
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
Combination of annuity and lump sum. FORM OF PAYMENT Combination of annuity and lump sum, or lump sum only (depending
Executive-only on the amount of fund balance at retirement age).
plans Not prevalent. HYBRID ALTERNATIVES Not prevalent.
Not prevalent
Valuations: At least every three years, depending on the quality of OTHER Employee investment choice: Available, but employers typically do
funding. Local accounting standard: PSAK 24. not offer investment choice to employees.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Nowadays, DC plans, namely those secured through an FIPF, Employers are required to participate in a new compulsory
are more popular than DB plans. retirement scheme, the Employment Termination Compensation
Trend among companies to move from an unfunded DB book Program, by paying future service contributions of 3% of monthly
reserve to use of a DC plan in order to fund the mandatory base salary plus a past service contribution (actuarially
termination benefits under Labor Law #13. determined). The final draft of government regulation has been
agreed upon by many parties, but approval has been delayed for
about a year thus far. The pension industry especially has been
pushing the government for approval as soon as possible.
Some regulations for implementation of a national social security
system (Law #40/2004), a comprehensive scheme covering
health, death, and disability and pension benefits, were originally
planned to be issued in 2008 or so, with implementation to start in
2009. No progress has been seen to this date.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 36
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 37
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 38
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 39
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
Executive-only Full cost of plan. Approved trust fund: Maximum tax-deductible EMPLOYER Additional voluntary contributions to EPF of up to 7%. This is the
contribution rate is 7% of pensionable earnings. Book reserve: CONTRIBUTION current tax-allowable rate. Typical contribution rate is between 3%
plans
Expense charged to profit-and-loss account is not tax-effective, but and 5%. Some bigger corporations contribute at 7%.
Fairly common payment of benefits is tax-effective.
Approved trust fund or book reserve. FINANCING Contributions to a central fund run by the EPF.
Lump sum. FORM OF PAYMENT Lump sum.
Not prevalent. HYBRID ALTERNATIVES Not prevalent.
Valuations: Every three years for approved trust fund. OTHER Employee investment choice: No.
Local accounting standard: FRS 119 (similar to IAS 19).
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Trend is to move toward DC in the form of additional A new single-tier tax system became effective in 2008 (with a
contributions to the EPF. An increasing number of companies are provision for companies to delay the adoption until 2013). Under
making voluntary contributions to the EPF and closing existing the new system, approved retirement funds (including the EPF)
voluntary gratuity schemes. will be unable to claim tax credit on dividend income. Sponsors of
The EPF provides a cheaper alternative compared to a self- approved retirement plans might have to increase contributions
administered retirement plan, as the EPF administers the plan at to make up for any loss in retirement fund income.
zero cost to the employer. Normal retirement age increased from 56 to 58 for public-sector
employees only, effective July 2008.
For calendar years 2009 – 2010, members of the Employees’
Provident Fund will have the option of making employee
contributions of 8% of gross pay, down from the standard 11%.
The cut is automatic for all, so action is required only if members
choose to maintain the 11% employee contribution level.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 40
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 41
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
Plan Financing: Funded out of general taxation. Plan Eligibility: All citizens.
How Adequate Are Mandatory Benefits in Meeting Employee Plan Financing: ACC (Accident and Compensation Corporation)
funded out of employer levies; sickness benefits funded out of
Needs? Adequate in terms of coverage, but there are long delays
at public hospitals and clinics (many New Zealanders have general taxation.
private health insurance to avoid such delays). How Adequate Are Mandatory Benefits in Meeting Employee
Needs? ACC is quite adequate for those on an average salary;
sickness benefits are inadequate.
Typical Typical Typical
Plans: Medical. Plans: Short-term disability benefit (STD), total permanent Plans: Death and accidental death & dismemberment (AD&D).
Prevalence: 50% of multinational and local leading companies. disability (TPD) and long-term disability (LTD). Prevalence: 50% of multinational and local leading companies.
Plan Eligibility: Often all employees including executives, but may Prevalence: TPD, LTD or STD – 20% of multinational and local Plan Eligibility: All employees or all members of a superannuation
leading companies.
have different plans for executives and other employees. plan.
Plan Eligibility: Varies; normally all employees or all members of
Dependent Coverage: Varies greatly. Benefit Description: The death benefit for natural and accidental
a superannuation scheme. causes is three times annual salary.
Benefit Description: Outpatient services, hospitalization,
Benefit Description: STD – Salary continuation at 75% of salary
ambulance services. Benefit level varies greatly, with executives Employee Contributions: Often 100% by employee, but may be
for up to two years. TPD – Lump sum of three times annual
receiving more comprehensive benefits. paid by employer, especially if part of superannuation.
salary. LTD – Salary continuation at 75% of salary.
Employee Contributions: None for employee. Dependent Plan Financing: Insurance policy.
Employee Contributions: None.
coverage contribution by employee varies greatly. Is Coverage Part of Another Plan? Death benefit through a
Plan Financing: Insurance policy.
Plan Financing: Insurance policy. superannuation scheme or a group insurance policy. AD&D
Is Coverage Part of Another Plan? STD – Normally part of benefits through a superannuation scheme or a group insurance
Is Coverage Part of Another Plan? No.
superannuation. TPD – Often a rider to a life policy. LTD – Not policy.
necessarily part of superannuation; often independent of this.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
KiwiSaver may encourage the placement of more insured benefit
policies.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 43
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 44
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 45
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
% of supplementary Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
plans Vesting benefit: Starts after five or 10 years of service. In either case, VESTING Vesting of employer contributions: Starts after five years of service,
DB: 63% benefit at 10 years is 50% of accrued benefit; full vesting at 20 years. and contributions are fully vested after 20 years of service.
DC: 26% Not required. None. EMPLOYEE Many DC plans have no contribution requirement but do allow
CONTRIBUTION voluntary contributions.
Hybrid: 11%
Full cost of plan. EMPLOYER 5% – 12% of base salary.
CONTRIBUTION
Executive-only
Tax-qualified trust fund. Most plans here are not fully funded. FINANCING Tax-qualified trust fund.
plans
Not prevalent Lump sum. FORM OF PAYMENT Lump sum.
Not prevalent. HYBRID ALTERNATIVES Mandatory minimum under Labor Code is guaranteed.
Valuations: If a plan is registered with the government, funding OTHER Employee investment choice: No.
valuation is required at plan establishment and at time of plan
amendment. For financial reporting, PAS 19 compliant valuations are
required. Local accounting standard: PAS 19, which is essentially the
same as IAS 19.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Underfunding of DB plans is common. Due to legal minimum retirement benefit and tax advantages, The Personal Equity Retirement Act (PERA), signed into law in
DC plans must still consider legal minimum (which is in the form companies inevitably set up formal retirement plans. August 2008, provides tax incentives to voluntary personal
retirement accounts managed by accredited financial service
of a defined benefit formula), so effectively become hybrid Due to adoption of IAS reporting standards and volatility of
plans. interest rates, external auditors normally require full accounting providers.
Tax laws are still more favorable to plans operated as trusts (as valuation every year.
opposed to insured plans). New plans are still predominantly DB, in line with market practice.
Some multinational firms are looking to convert existing DB plans
to DC plans, although this is quite difficult to do because of the
legal minimum (which is a defined benefit).
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 46
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 47
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 48
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
DC: 0% Contribution not required. EMPLOYER Minimum annual contribution equal to one month’s salary.
CONTRIBUTION
Hybrid: 0%
Most plans are not funded; 25% of plans are financed via FINANCING 100% funded every year.
insurance/trust arrangements.
Executive-only Lump sum. FORM OF PAYMENT Lump sum or annuity.
plans
None. HYBRID ALTERNATIVES None.
Common
Korean local companies follow Korean accounting standard. OTHER Not applicable.
Most multinational companies perform valuation under
FAS87/IAS19.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Companies can retain existing SPS benefit formula in the new Since the introduction of ERSA, the Korean corporate pension ERSA became effective December 1, 2005. Under ERSA,
funded DB plan under ERSA. ERSA plans are the only tax- market is beginning to heat up, with more than 53,000 new ERSA employers are able to choose between retaining the SPS or
favored plans. SPS plans cannot be funded after 2010. plans in existence (as of March 2009). Local companies prefer setting up a funded ERSA DB or DC plan. The ERSA legislation is
However, more important are the funding implications for the DB plans, while foreign affiliates are leaning toward DC. voluntary. Companies can convert at a later date if desired.
transition to a funded DB or DC plan: For DC transfers, ERSA DB plan assets have increased significantly compared to However, retirement insurance schemes will lose their tax-
immediate funding of prior service benefits and ongoing qualified status by December 2010.
DC assets, while the number of DC plans is greater than the
benefits are typically funding requirements (that is, cash flow
number of DB plans. Majority (50%) employee/union consent is required to establish a
implications). For DB transfers, there is a 60% prior-service funded ERSA DB or DC plan. Employers with less than 10
funding requirement and allowable amortized funding
employees can offer an individual retirement account (IRA) as an
thereafter, so there could still be an immediate, short-term cash
alternative to a funded plan.
flow requirement.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 50
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 51
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
DB: 65% Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
DC: 30% Vesting benefit: Usually starts from fifth year and full vesting usually VESTING Depending on the way of financing:
takes 15 years. Bureau of Labor Insurance: Immediate 100% vested.
Hybrid: 5%
Book reserve: Usually starts from fifth year and full vesting usually
takes 15 years.
Executive-only
plans Not required. None. EMPLOYEE Not required. Employee can make voluntary contributions up to 6%
CONTRIBUTION of employee’s defined earnings.
Not prevalent
Full cost of plan. EMPLOYER Additional employer contribution rate is no more than 6%.
CONTRIBUTION
Book reserve is most common. FINANCING Book reserve,
Contribution to Bureau of Labor Insurance, or companies that meet
certain conditions may offer an annuity insurance policy.
Lump sum. FORM OF PAYMENT Lump sum/Annuity.
Not prevalent. HYBRID ALTERNATIVES Not prevalent.
Valuations: Annually (can be full valuation every two to three years OTHER Employee investment choice: No.
with roll forward valuation for the years in between). Local
accounting standard: Taiwan FAS 18 (mix of FAS 87 and IAS 19).
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Most companies are funding at the minimum level (2% of payroll Due to the implementation of LPA, many companies restructured The mandatory retirement age prescribed in the Labor Standards
minimum funding requirement under TLSA) while employees their supplementary benefit so that it can integrate with the new Act has increased from 60 to 65. Employers need to amend their
may receive supplementary benefits above the statutory level. DC-type LPA scheme. plan rules.
Therefore, underfunding is common. Based on information as of February 2009, less than 30% of The early retirement eligibility was amended to include an
companies covered under the Labor Standards Act have funded additional requirement: age 60 with more than 10 years of
their retirement plan. service with the same employer.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 52
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 53
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 54
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 55
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 56
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Asia Pacific
September 2009
Dependent Coverage: Around 44% of companies provide Plan Eligibility: All employees. Plan Eligibility: All employees.
coverage for dependents. Benefit Description: Lump sum equal to life insurance policy. Benefit Description: Life – Death from natural or accidental
causes receives a median lump sum of VND 82.5 million, or 30
Benefit Description: Hospitalization and surgical, outpatient Employee Contributions: None.
clinical, and medical checkup. times monthly salary. AD&D – Lump sum of VND 203.0 million,
Plan Financing: Insurance policy. or 30 times monthly salary.
Employee Contributions: None.
Is Coverage Part of Another Plan? Yes, as a rider to the life Employee Contributions: None.
Plan Financing: With regard to medical checkups, companies insurance policy.
Plan Financing: Insurance policy.
typically prefer to sign a contract with selected clinic directly,
while hospital and surgical and outpatient clinical services are Is Coverage Part of Another Plan? Life – No. AD&D – Often as a
offered on an insured basis. rider to the life insurance policy.
Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Medical inflation rate (2008): 20%. A rising income level and a poor public health care system have A new personal income tax (PIT) law will have an impact on
Due to high loss ratio incurred by dependents, companies are triggered an increased demand for private medical treatment. As employment costs and take-home pay.
a result, companies are increasingly incorporating private Unemployment insurance (effective January 1, 2009) will
rethinking ways to contain rising medical costs.
medical plans in their benefits package, as well as private life
Private hospitals, which are mainly used by expats and locals increase social costs, and companies will have to amend payroll
insurance to provide coverage of death due to natural causes. systems.
with richer benefits, are few, and cases requiring surgery must
Presently, some companies are seeking a high-end scheme with
still be treated in public hospitals.
a flexible plan for employees.
In addition, there is an increasing demand for outpatient cashless
direct settlement.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 57
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 58
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 59
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
Greece
Author: Greg.Koudounis@marsh.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Social Security Institute (IKA-ETAM) PLAN NAME All members receive DB only.
Practice + auxiliary fund system, which tops up benefit on a DB basis. Most
common auxiliary fund is ETEAM (Enieo Tamio Epikourikis Asfalisis
Misthoton), but others exist.
+ mandatory termination indemnity.
Typical Market Approximate: Minimum service requirement (up to one year) is typical, but PLAN ELIGIBILITY Normally open to all employees after a certain waiting period, or in
Practice % of multinational eligibility criteria vary by employer. Some DB plans also had a certain cases, limited to management team members only. Minimum
minimum grade requirement. Traditionally top-up DB plans service requirement (up to one year) is typical, but eligibility criteria
and local leading
integrated with social security benefits were widespread. In effect, vary by employer.
companies with a
supplementary plan only higher-paid employees were covered. Almost no new DB
schemes are being set up now.
60%
Follows the IKA-ETAM system: 65 males/65 females (65 males/60 NORMAL RET. AGE Follows the IKA-ETAM system: 65 males/65 females (65 males/60
females for persons already in employment on January 1, 1993). females for persons already in employment on January 1, 1993).
% of supplementary Formulas vary, but typically target a total replacement ratio of around BENEFIT FORMULA Accumulation of contributions with interest.
plans 80%.
DB: 30% Provided through retirement plan as part of insurance product. DEATH & DISABILITY Benefit is equal to accrued savings amount only.
DC: 67% Vesting benefit varies by plan from refund of contributions plus VESTING Vesting of employer contributions varies by plan; in most cases, this
Hybrid: 3% interest to a deferred pension. Within plans, rules may vary applies only in case of resignation and it is usually from five to 10
according to service. years.
Not required. None. EMPLOYEE More common than in DB plans. Rate varies between 2% and 15%
Executive-only
CONTRIBUTION and in extreme cases can reach 25%. However, 84% of plans do not
plans
require employee contributions.
Not prevalent; the
structure of benefits Full cost of plan. EMPLOYER Median contribution is around 5% of base salary (typically paid 14
traditionally favored CONTRIBUTION times per annum). Integrated schemes that still exist have a higher
higher earners level of contribution above IKA-ETAM ceiling than below.
although this is less Insurance policy. FINANCING Insurance policy.
so now
Lump sum with pension option and vice versa. FORM OF PAYMENT Lump sum with an option to convert to pension.
Not prevalent but a few exist. HYBRID ALTERNATIVES Not prevalent but a few exist. New plans do not incorporate such a
structure.
Valuations: Every one to two years. OTHER Employee investment choice: Some insurance policies provide such
option.
Local accounting standard: IAS 19.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Expenses by employers cumulatively for all insured Almost all new schemes are DC. In the past, DC plans were Premiums for insured benefits are not subject to stamp duty (2.4%)
supplementary plans (retirement, life, accident, medical, etc.) are often integrated with the social security system and therefore as of January 1, 2009.
tax-deductible up to the amount of EUR 1,500 per employee, per provided benefits only to higher-paid employees. Many DC
year; this amount is very low for supplementary retirement plans, schemes are now nonintegrated and pay the same percentage of
especially for highly paid employees. contribution to all employees.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 60
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
Greece
Author: Greg.Koudounis@marsh.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
Benefits Provided by Social Security: Inpatient hospital benefits, Benefits Provided by Social Security: A short-term disability Benefits Provided by Social Security: Upon death (due to natural
outpatient services (doctors, lab tests), medicines, dental and benefit is provided. Long-term disability pension is granted, or accidental causes), no lump-sum benefit is provided. A
vision benefits, maternity benefits, ambulance services, provided that contributions have been made for at least 4,500 pension is payable to spouse and dependent children provided
preventive medicine. days, or less in special cases. that contributions have been made for at least 4,500 days, or less
Plan Eligibility: All salaried employees are eligible to participate Plan Eligibility (STD): All salaried employees are eligible to in special cases. Burial expenses up to a certain amount are
refunded.
provided they have completed at least 60 working days in the last participate provided they have completed at least 110 working
year (or within the preceding 15 months – not counting the most days in the previous calendar year (or within the preceding 15 Eligibility: All salaried employees are eligible to participate
recent three months). Retirees are also covered. The minimum months – not counting the last three months). The minimum provided they have completed at least 110 working days.
number of contribution days will be increased by 10 days per number of working days will be increased to 120 in the year Retirees are also covered.
year until the minimum number reaches 100 days. 2010. Requirements are reduced to 55 days (or 60 days in 2010) Plan Financing: Contributions to social security.
in case of an accident or are eliminated in case of a work-related
Plan Financing: Contributions to social security. How Adequate Are Mandatory Benefits in Meeting Employee
accident.
How Adequate Are Mandatory Benefits in Meeting Employee Needs? Inadequate.
Plan Financing: Contributions to social security.
Needs? Inadequate.
How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Inadequate.
Typical Typical Typical
Plans: Medical. Plans: Total permanent disability (TPD) and short-term disability Plans: Death (life insurance) and accidental death &
Prevalence: 98% of multinational and local leading companies. (STD). dismemberment (AD&D).
Prevalence: TPD for 95% and STD for 65% of multinational and Prevalence: Death and AD&D – 98% of multinational and local
Plan Eligibility: All employees. Sometimes the level of benefits
local leading companies. leading companies.
varies between executives and other employees.
Dependent Coverage: Yes. Plan Eligibility: All employees. Plan Eligibility: All employees.
Benefit Description: Inpatient benefits, outpatient services Benefit Description: TPD – Lump sum of 14 or 28 monthly Benefit Description: Death and AD&D – Lump sum of 14 or 28
salaries (one or two times annual salary). STD – Monthly benefit monthly salaries (one or two times annual salary). AD&D benefit
(doctors, diagnostic examinations), medicines, maternity benefits,
ambulance services. A maximum amount per person, per year (after a 30-day waiting period) is 80% of monthly salary is in addition to Death benefit.
integrated with social security (IKA) benefit. Employee Contributions: None.
for medical benefits is applied (on average EUR 12,000 to EUR
15,000). Employee Contributions: None. Plan Financing: Insurance policy.
Employee Contributions: Typically none, although 20% – 30% of Plan Financing: TPD and STD – Insurance policy. Is Coverage Part of Another Plan? Death (life insurance) – No.
companies require this for employee coverage. Employee
Is Coverage Part of Another Plan? TPD and STD – Yes, as a AD&D – Either as a stand-alone plan or as a rider to the life
assumes full cost for dependent coverage. rider benefit to the life insurance policy. insurance policy.
Plan Financing: Insurance policy.
Is Coverage Part of Another Plan? Yes, as a rider to the life
insurance policy.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Cumulative employer contributions for all insured supplementary Premiums for insured benefits are not subject to stamp duty
plans (life, accident, disability, medical, retirement, etc.) are tax (2.4%) as of January 1, 2009.
deductible up to the amount of EUR 1,500 per employee, per
year.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 61
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
% of supplementary DEATH & DISABILITY This is usually covered by group life insurance. In the case of VMPF,
plans the accumulated amount is inheritable.
DB: 0% VESTING Vesting of employer contributions: Immediate full vesting.
DC: 100% EMPLOYEE CONTRIBUTION Not required in most plans. If required, 1% – 2% of gross salary.
Voluntary contributions possible from the net salary.
Hybrid: 0%
EMPLOYER CONTRIBUTION Between 3% and 5% of gross base salary. Majority of companies pay
4%. Majority of companies contribute only up to the tax-free limit,
Executive-only which is HUF 35,750 for 2009.
plans
FINANCING Open, multi-employer fund usually backed by financial institutions
Not prevalent due to (banks or insurance companies).
nondiscrimination
FORM OF PAYMENT Choice of annuity, lump sum or combination of both after reaching
regulation; instead,
retirement. Before retirement, but after 10-year waiting period, a lump-
executives usually
sum benefit may be received.
receive additional life
insurance cover HYBRID ALTERNATIVES None.
(“endowment policy”)
OTHER Employee investment choice: More funds are beginning to offer a
choice of at least three to four investment risk portfolios.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
There are significant restrictions on what the employer can Voluntary pension benefits are typical elements of flexible benefit Occupational pension schemes (IORPs) are possible and have
contribute for fund members, such as nondiscrimination rules. plans. It is also common practice to pay a basic level of the same tax consequences as for voluntary mutual pension
contributions outside the flexible benefit plan and offer employees funds.
to supplement the contribution to pension from the flex budget.
Beginning in 2012, retirement age is to be raised by six months
According to Mercer’s Total Remuneration Survey, 45% of each year until it reaches age 65.
companies provide retirement benefits to their employees as a
core benefit, while another 39% of companies provide retirement Rules for 13-month pension bonus are changed.
benefits under a flex scheme. In total, then, the retirement benefit
prevelance is 84%.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 62
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 63
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 64
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 65
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
DB: 0% DEATH & DISABILITY Pillar III: Possible in one form of qualified plan – unit life insurance
policy. Death – Yes. Disability – Yes, but only if it is supplementary to
DC: 100% death coverage. Typically provided by more than 50% of companies
Hybrid: 0% offering Pillar III plans. Pillar IV: Possible in form of insurance plan.
VESTING Vesting of employer contributions: Pillar III – Immediate full vesting.
Executive-only EMPLOYEE Pillar III: Not required. Voluntary contributions possible, up to
plans CONTRIBUTION maximum 450% of the forecasted monthly average wage in the
economy for a given year.
Relatively
uncommon; possible EMPLOYER Pillar III: Required by law and cannot exceed 7% of employee
only in Pillar IV CONTRIBUTION remuneration. Employer-matching of employee contributions is not
permitted by law.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 66
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 67
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 68
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 69
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 70
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 71
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
South Africa Author: Pierre Marais at plm@globalrem.co.za, Global Remuneration Solutions (Pty) Ltd South Africa
Peer Reviewer: Andre Geldenhuys at jag@globalrem.co.za
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory Nil None, but government provides a state old-age pension (Pillar 1) on PLAN NAME All members receive DB only.
Practice a means test basis.
Typical Market Approximate: Pension fund: Some historic schemes still in operation. Typically not PLAN ELIGIBILITY Pension fund or provident fund: Full-time permanent employees,
Practice open to new employees. upon date of hire.
% of multinational
and local leading 60 or 65 males/60 or 65 females. NORMAL RET. AGE 60 males/60 females.
companies with a
Equal to 2% of final salary for each year of pensionable service. BENEFIT FORMULA Accumulation of contributions with growth/interest.
supplementary plan
98% Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
Vesting benefit: Immediate full vesting. VESTING Vesting of contributions: Immediate full vesting.
% of supplementary Required; 6% to 7.5% (but most commonly 7.5%). EMPLOYEE Pension fund: Required; 5.00% to 7.50%, with average 5.95% (lower
plans CONTRIBUTION employee rate applies mainly for unionized employees). Provident
fund: None; often noncontributory due to tax dispensation.
DB: 15%
Balance of plan cost: Employer contributions subject to increase as EMPLOYER 5.00% to 13.00% of pensionable salary, with average 9.95%,
DC: 83%
closed membership ages. CONTRIBUTION includes cost of insured group risk benefits and administration (lower
Hybrid: 2% contribution rate usually applies for unionized funds). For a
noncontributory provident fund: 10% to 20% of pensionable salary
(percentage includes risk and administration costs).
Executive-only
plans Only own scheme (no multi-employer or industrywide schemes FINANCING Provident funds on industrywide basis are common for unionized
operate on a DB basis). No unfunded plans (legislation requires staff. Smaller employers often join multi-employer (“umbrella”) funds.
Not prevalent; few funding). Medium-size employers operate own scheme. No unfunded plans
schemes that existed (legislation requires funding).
have generally been
integrated into a Member can receive up to a maximum of one-third of benefit as a FORM OF PAYMENT Provident fund: Annuity or lump sum. Option of taking 100% in cash.
main scheme lump sum; balance must be taken as an annuity. Pension Fund: Retiree must take at least two-thirds of benefit in form
of pension (that is, maximum one-third in cash).
Some DB scheme rules specify the employer contribution rate (that HYBRID ALTERNATIVES A few DC schemes have a DB underpinning, but this relates to
is, no longer a balance-of-cost scheme). conversion from DB for existing members.
Valuations: Every three years. OTHER Employee investment choice: Typically is offered only to senior
Local accounting standard: AC116, which is similar to IAS 19. employee groups, and generally is associated with life-stage profiling
as a default investment strategy.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
HIV/AIDS continues to have an impact on the cost of risk Smaller and medium-size employers are moving toward multi- The state has commenced with a consultative process aimed at
benefits. employer (“umbrella”) funds. the establishment of a national retirement fund, which could have
The Pension Funds Second Amendment Act prescribes minimum Socially responsible investing (aimed at infrastructure major implications for all private funds and employers (and
employees). During the past 12 months, however, very little
benefits and also deals with the ownership of surplus. Employer development, job creation, etc.) is a key issue for trustees to
progress has been made. It is anticipated that the process will be
is liable to fund at least prescribed minimum benefits on consider.
liquidation of the fund. This is only an issue for historic DB funds. revitalized in the wake of the 2009 general elections. In terms of
DB funds are unlikely to continue unless the fund has large current realistic expectations, no changes are anticipated prior to
The global economic downturn and drastic drop in equity markets solvency reserves. (Most DB funds are well-funded.) 2011.
has had a negative impact on DC funds and thereby increased
the pressure on boards of trustees and employers.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 72
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
South Africa Author: Pierre Marais at plm@globalrem.co.za, Global Remuneration Solutions (Pty) Ltd South Africa
Peer Reviewer: Andre Geldenhuys at jag@globalrem.co.za
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
Benefits Provided by Social Security: Hospitalization, surgery, Benefits Provided by Social Security: Long-term disability Benefits Provided by Social Security: Work-related death benefits
prescription drugs. pension (means tested), available to severely affected for six and unemployment survivor benefits only.
Plan Eligibility: All citizens. The individual must not belong to a months or more. Short-term disability benefits are paid to those Plan Eligibility: All citizens in formal employment.
private medical aid/scheme. earning a maximum ZAR 149,736 per year.
Plan Financing: Contributions to the Unemployment Insurance
Plan Financing: Contributions to social security. Plan Eligibility: All citizens. Fund.
How Adequate Are Mandatory Benefits in Meeting Employee Plan Financing: LTD – Paid by social security, and no How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Benefits are considered to be adequate in terms of contributions are due from employees or employers. STD – Needs? Inadequate.
primary health care and basic medicine. Quality of service tends Contributions required under Compensation for Occupational
to vary geographically depending on availability of state health Injuries and Diseases Act, Unemployment Insurance Fund Act.
care facilities. How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Adequate, but poorly administered.
Typical Typical Typical
Plans: Medical. Plans: Long-term disability (LTD) and short-term disability (STD). Plans: Death and accidental death & dismemberment (AD&D).
Prevalence: 98% of multinational and local leading companies. Prevalence: LTD for 95% and STD for 95% of multinational and Prevalence: Death for 98% and AD&D for 98% of multinational
Plan Eligibility: One plan for all employees (including executives) local leading companies. and local leading companies.
in formal employment. Plan Eligibility: LTD and STD – Full-time permanent employees. Plan Eligibility: Death – Full-time permanent employees. AD&D –
Dependent Coverage: Yes. Benefit Description: LTD – Temporary disability income benefits Commonly provided to blue-collar employees only.
Benefit Description: Member choice of medical coverage ranging paid for six months after a waiting period of three months. At the Benefit Description: Death – Lump sum of two to five times (norm
from full coverage to major events only. Some larger employers end of the nine-month period, a capital sum disability benefit is is three) annual pensionable salary. Spouses’ pensions, where
provide medical services at an in-house facility. paid, equal to two to five times annual salary. It is customary to provided, are usually 50% of projected retirement pensions, or in
Employee Contributions: Typically 50% of plan costs for base benefits on full earnings or 75% of earnings. It is becoming the case of DC funds, 40% to 50% of the member’s pensionable
employee and dependents, up to a maximum, which varies from more popular to provide LTD benefits equal to 75% of salary, salary at death. Orphans’ pensions are often 20% of the spouse’s
payable after a waiting period of three to six months until pension. AD&D – Lump sum of three times annual salary.
company to company. In many instances employers have
retirement or recovery. STD – Paid sick leave only. Employee Contributions: Death – Included in contributions to the
introduced a “total package” (TP) remuneration model. In such
cases the employee pays in full from the given TP. Employee Contributions: None. pension plan. AD&D – None.
Plan Financing: Traditional medical scheme, or increasingly Plan Financing: LTD – Insurance policy. STD – Paid by employer Plan Financing: Death – Insurance policy, although some large
through insured plan. from company assets. funds are self-funded. AD&D – Insurance policy.
Is Coverage Part of Another Plan? No. Is Coverage Part of Another Plan? LTD – Yes, as part of Is Coverage Part of Another Plan? Death – Yes, typically as part
retirement plan. STD – No. of retirement plan. AD&D – No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Over the last five years the cost of medical treatment has Employers continue to take appropriate steps to limit their Major national health care reforms are under consideration. It is
increased at a faster rate than the general inflation rate. During exposure to post-retirement medical funding. expected that legislation will be introduced in a phased process
2008 this trend was temporarily reversed due to a rapid increase There is a continued trend toward medical plans that incorporate during the next five years, providing for
in general inflation to 13%, while medical costs are estimated to co-insurance mechanisms and deductibles for cost control. o the introduction of a national risk equalization fund to which
have risen by 10% – 12%. Medical schemes are increasingly starting to resort to managed all medical schemes will be required to contribute;
health care solutions to contain cost and improve quality of care. o the introduction of a legislated basic minimum benefits
This trend is supported by the government’s legislative program package that all medical schemes will be required to offer;
of seeking to introduce of a standard minimum benefits package, and
which would be based on managed health care principles. o compulsory medical scheme membership for all persons who
are in formal employment.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 73
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 74
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 75
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 76
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Eastern Europe, Middle East, Africa
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 77
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 78
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 79
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 80
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Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
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Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
% of supplementary EMPLOYEE Not required but depends on the pension policy of the company;
plans CONTRIBUTION contribution is typically one-third of total contribution (4% to 5% of
base salary).
DB: 2%
EMPLOYER Typical two-thirds of total contribution (8% to 10% of base salary).
DC: 98% CONTRIBUTION
Hybrid: 0% FINANCING Insurance policy. Premiums for death and disability benefits are
typically included in the pension contribution, and so are health
insurance and critical illness, if those benefits are part of the plan.
Executive-only
However, it is not atypical for some of these benefits to be group
plans
benefits, in addition to the pension contribution and paid by the
Common employer.
FORM OF PAYMENT Typically the employee chooses a combination of lump sum and
annuity.
HYBRID ALTERNATIVES Not prevalent.
OTHER Employee investment choice: Yes.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
The yield on investments has been falling over the years and New investment products are being developed both for the As of May 1, 2007, the statutory retirement age increased from
puts pressure on the traditional savings with guaranteed choice of individual employees and for pension companies 65 to 67 (and from 60 to 62 for early retirement). This increase
payments. The number of pensioners has increased, and interested in offering investment products. will be gradually implemented between 2024 and 2027. Given
pensioners are living longer. For pensioners with lifelong New opportunities for investments, such as savings investments that company pension rules usually link retirement age to the
pensions, the pensions are paid out for more years. As the state retirement pension age, it is anticipated that many
that can be separated from the benefit plan.
money for the extra payments is taken from the bonus of the companies will modify their pension plan rules and will gradually
entire pension fund population, it is expected that interest above Pension providers are reducing their costs, which provides an change the ages for early and normal retirement, in line with the
the minimum guaranteed could be reduced for the entire pension opportunity for employers to spend the saved costs on other state retirement age transition period.
fund population. For employees, more contributions need to be pension-related items.
paid into the pension plan to have the expected pension income More flexibility and mobility in the transfer of a pension plan from
during the full retirement period. Currently, several pension one provider to another.
providers apply a transfer fee due to the decrease in returns on
investments. Changes in tax legislation bring focus on lifelong pensions.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 82
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September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 83
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Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
% of supplementary Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
plans Vesting benefit: Immediate full vesting. VESTING Vesting of employer contributions: Immediate full vesting.
DB: 85% Not required. None. EMPLOYEE Not required. Employee contributions are possible up to EUR 5,000
DC: 15% CONTRIBUTION per annum, but it is not a common practice.
Hybrid: 0% Full cost of plan. EMPLOYER Varies. Between 5% and 20% of annual salary.
CONTRIBUTION
Insurance policy. FINANCING Insurance policy.
Executive-only
plans Annuity. FORM OF PAYMENT Annuity.
Fairly common, Not prevalent. HYBRID ALTERNATIVES Not prevalent.
especially among Valuations: Annually by insurers. OTHER Employee investment choice is a growing trend.
multinational and
larger local Local accounting standard: IAS 19.
companies
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Trend toward closing DB plans and offering DC plans, as an TEL, TaEL and LEL laws were replaced by the Employees’
answer to IFRS. Companies are looking for possibilities to Pensions Act (TyEL), effective January 1, 2007. TyEL unifies and
transfer from DB to DC. However, there are difficulties due to clarifies the private-sector earnings-related pension acts so they
unions and employment contracts. Senior management plans are become one entity. Through the new act, earnings-related
easier to change to DC because management understands the pension provisions became similar for both long-term
IFRS consequences. employment contracts and short-term, temporary employment
Supplementary plans (both DB and DC) are tax-effective. contracts. The benefits will remain as earlier.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 84
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 85
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 86
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Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 87
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 88
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 92
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
2008 medical inflation: 2% (2008 national average rate of Supplemental medical plans for nonmanagers are gaining The 2008 budget law has introduced a list of mandatory medical
increase in medical care costs as per National Institute of popularity. About 40% of multinational and local leading services (dental care, among others) that have to be provided by
Statistics, or ISTAT). Note, however, that this low inflation rate is companies are providing this benefit to nonmanagers due to a supplementary medical plans used by companies in order for
driven by the fact that the cost of medicine has decreased by decline in the quality of social security services. employees to benefit from the tax relief on premiums paid by the
5.7% while other costs have increased. company (up to EUR 3,615 per year). Plans are required to
implement such services from 2010.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 93
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Increasing impact of control authorities. Trends toward closing DB plans and setting up DC Single Status Law of May 13, 2008, became effective January 1,
Financial stability of the generous state pension system will come occupational pension plans for blue-collar employees, as a 2009.
consequence of the Single Status Law of May 13, 2008. No distinction anymore between blue- and white-collar employees.
under pressure in the coming years.
New supplementary pension plan applicable to all salaried
members.
No automatic extension of existing pension plans to all members.
Now possible to close the existing pension plan for current affiliates
and to set up a new one for all new comers with the option for the
current members to move to the new one.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 94
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 95
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
% of supplementary Included in retirement plan: Death – Yes. Disability – Yes, in some DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes, in some
plans cases (or separately insured). cases (or separately insured).
DB: 82% Vesting benefit: Immediate vesting is compulsory. VESTING Same as DB.
DC: 8% Not required. For industrywide pension funds, typically about one- EMPLOYEE Not required. Typically fixed percentage between 5% and 10% of
third of plan cost (depending on industry). For company pension CONTRIBUTION pension base. Contribution should be the same for all employees
Hybrid: 10% funds, typically a fixed percentage between 5% and 10% of pension regardless of sex, age or marital status. Recent legislation banning
base. Contribution should be the same for all employees regardless early retirement plans might terminate trend toward additional
of sex, age or marital status. voluntary contributions.
Executive-only
plans Balance of plan cost, minus employee’s contribution. EMPLOYER Same as DB.
Fairly common; for CONTRIBUTION
executives, top-hat Industrywide pension fund (80% of plans), company pension fund FINANCING Insurance policy (57% of plans), industrywide pension fund (31% of
pension plans offer (13% of plans) or insurance policy (7% of plans). plans) or company pension fund (12% of plans).
tax-efficient benefits
Annuity. Lump sums are not permitted by law. FORM OF PAYMENT Annuity. Lump sums are not permitted by law.
DB plans within DC accounting (“collective DC”). HYBRID ALTERNATIVES DB/DC hybrids (usually split by salary levels or function) are more or
less common in all sectors.
Valuations: Annually for IFRS or GAAP. Local standard legislation OTHER Employee investment choice: Yes.
Dutch GAAP has changed. Distinction between defined benefit and
defined contribution plans has been eliminated.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
There have been discussions around age discrimination issues. Move toward career average DB plans. Move toward DC plans New Pension Act, effective January 1, 2007, requires stronger
The courts need to clarify how and when age discrimination is (gradually), not only for high-tech employers and smaller employer focus on DC plan governance and duty of care.
applicable. Employers risk being obliged to contribute more in companies. Possibly move toward collective DC (DB plan within New requirements regarding funding (FTK) and pension fund
case of a negative ruling. DC accounting).
governance became effective January 1, 2007.
The Dutch accounting and employer bodies cannot reach Interest in pan-European solutions is slowly rising. The Dutch Accounting Standards Board (RJ) says it has moved
agreement on whether Dutch compulsory multi-employer plans
from a company risk-based approach, as used in IFRS and US
should be treated as DB or DC under IFRS. GAAP, to a company liabilities-based approach. The distinction
between defined benefit plans and defined contribution plans has
been eliminated. These standards are formally applicable from
accounting year 2010, but earlier application is allowed.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 96
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 98
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 99
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 100
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 101
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
Personal Income Tax law, effective January 1, 2007: The law ORDER EHA/407/2008, February 7, implements the Pension
creates a new type of company retirement benefit plan (“plan Plans and Funds Regulations, legislation on financial and
de prevision social empresarial”), which is hybrid group life actuarial requirements, investment regulation, and registry
insurance based on the principles of employment-qualified procedures.
pension plans and the same tax treatment as employment
Royal Decree (proposed), modifies the Pension Plans and Funds
qualified pension plans (but without Control Committee). Regulations (Royal Decree 304/2004, February 20) in terms of
the requirements to obtain the long-term unemployment benefit.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 102
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 103
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
DB: 0% 10.0% of final salary up to 7.5 IBA (SEK 381,750 for 2009); 65.0% BENEFIT FORMULA Accumulation of contributions with interest.
from 7.5 IBA to 20 IBA; and 32.5% from 20 IBA to 30 IBA.
DC: 0%
Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
Hybrid: 100%
Immediate full vesting required by collective agreement. VESTING Immediate full vesting required by collective agreement.
Typical to offer ITP
DB plan for salaried No employee contribution can be made. EMPLOYEE No employee contribution can be made.
employees and SAF- CONTRIBUTION
LO DC plan for wage Average premium for ITP 12% to 14% of pensionable salary. EMPLOYER For SAF-LO, 4.0% of pensionable salary up to 7.5 IBA and 12.0%
earners; most CONTRIBUTION above the ceiling with no cap (through 2009). New ITP: 4.5% of
companies without a pensionable salary up to 7.5 IBA (SEK 381,750 for 2009) and 30.0%
collective agreement above the ceiling with no cap. The long-term disability insurance
have voluntary plans benefit is not included.
similar to ITP and
SAF-LO Insurance policy, book reserve, pensionsstiftelse (trust fund). FINANCING Insurance policy.
Annuity between five years and lifelong. FORM OF PAYMENT Annuity between five years and lifelong.
Executive-only HYBRID ALTERNATIVES Alternative ITP: DB up to 7.5 IBA, DC as above.
plans
Valuations: Annual IAS 19 valuation for listed groups. For local OTHER Employee investment choice: Yes. New ITP: 50% of the premium will
Fairly common accounting purposes (tax-driven), Swedish GAAP must be applied. go to “traditional insurance” with a guaranteed interest rate; the
remaining contribution will go to unit-linked insurance with multiple
choices. If no selection is made, there will be a default provider.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
For companies that do not have a collective agreement and ITP Newly negotiated collective agreements: A new DC-type ITP plan
plan (typically this includes smaller subsidiaries of multinationals, was implemented July 1, 2007. Collectum, the administration
with one to 100 employees), the new ITP plan premium level of company for this new plan, will inform employers and employees.
4.5% up to 7.5 IBA (SEK 381,750 for 2009) and 30% above that The pension plan for blue-collar workers – the SAF-LO plan – will
will likely become the new market practice for non-ITP insurance
be changed gradually to reach the same level as the new ITP
contracts.
plan (that is, 4.5% up to 7.5 IBA, and 30% above the ceiling) by
2012.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 104
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 105
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
% of supplementary Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
plans Vesting benefit: Immediate full vesting. VESTING Vesting benefit: Immediate full vesting.
DB: 10% Required in most Swiss pension funds. Ranges from 0% to 12% of EMPLOYEE Required in most Swiss pension funds. Ranges from 0% to 12% of
DC: 0% insured salary, in some cases depending on age. CONTRIBUTION insured salary, in most cases depending on age.
Hybrid: 90% From 3.5% to 25.0% of insured salaries (in some cases depending EMPLOYER 3.5% to 25.0% of insured salaries depending on age; employer
on age); employer contributions must amount to at least 50.0% of CONTRIBUTION contributions must amount to at least 50.0% of total contributions
total contributions (average 58.0%). (average 58.0%).
Executive-only
Pension funds set up as separate legal entities, managed by boards FINANCING Pension funds set up as separate legal entities, managed by boards
plans
with significant power over plan decisions. Fully reinsured multi- with significant power over plan decisions. Fully reinsured multi-
Fairly common employer plans, self-insured with externally insured death and employer plans, self-insured with externally insured death and
(particularly top-hat disability benefits, or fully self-insured. disability benefits, or fully self-insured.
pension plans and
Annuity option is mandatory for plans that comply with the legal FORM OF PAYMENT Annuity option is mandatory for plans that comply with the legal
special
minimum. Generally, choice of annuity or lump sum; top-hat plans minimum. Generally, choice of annuity or lump sum; top-hat plans
arrangements for
senior executives, usually pay only a lump sum. usually pay only a lump sum.
with a variety of DB plans define their retirement, death and disability benefits as DB ONLY PLAN Not applicable.
designs) percentage of last salaries (in rare cases of career average salaries).
Valuations: Generally annually (occasionally every three years). OTHER Valuations: Generally annually (occasionally every three years). Local
Local accounting standard: Swiss GAAP FER 26. accounting standard: Swiss GAAP FER 26.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
The funding status of some two-thirds of all Swiss pension Several large Swiss pension funds have recently moved to Proposal for restructuring supervisory authorities – reducing
funds has dropped below 100% as of February 2009. Remedial change their main pension plans from DB to hybrid plans. If considerably the number of regional supervisory authorities and
measures often include zero interest on savings, voluntary acquired rights are granted, such a transition is feasible under creating a more independent central authority.
employer contributions and in some cases additional Swiss law. During a transition period (two to five years), Normal retirement age for females is planned to go up to 65.
contributions (employer and employees). grandfathering provisions generally apply for current employees.
The main driver for this change was the fact that hybrid plans are The statutory conversion rate at normal retirement age is planned
more flexible to manage. to be lowered from 6.8% to 6.4% by 2015. A popular referendum
is planned to take place in late 2009/early 2010.
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 106
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 107
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
While this snapshot is Mercer’s understanding of current typical market practice, there are usually industry and geographical differences that should be taken into account if benchmarking or establishing a plan. 108
Within the Retirement summary, Death & Disability excludes information on any death and/or disability benefits that may be provided outside the retirement plan. Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Western Europe
September 2009
6. Popular Resources
Benefit and Compensation Plans Around the World (BPAW and CPAW) Global Compensation Planning Report
Designed for multinational employers, BPAW and CPAW Multinational employers the world over continue to refer
are annually updated global reference guides to to this report for hard-to-find information on salary trends
retirement and health benefit plans and compensation and key economic and labor market indices in addition to
programs in 48 countries. emerging market studies, wage analyses and economic
BPAW offers two pages per country – one page research. Our subscribers include economists,
retirement, one page health and welfare researchers, planners and policymakers, who use the
CPAW offers one page per country – compensation information to support business planning and to inform
practices and advise decision makers.
Both BPAW and CPAW full reports (all 48 countries) are http://www.imercer.com/gcpr
available to multinational companies at no charge.
Request form: http://www.mercer.com/bpaw.
Worldwide Benefit & Employment Guidelines (WBEG) The World Economic Forum Research with Mercer and the OECD
With its extensive market practice information, this report You are invited to listen to a one-hour recording
is an authoritative source on mandatory and private (http://www.mercer.com/wef-webcasts) presented by the
benefit practices as well as statutory regulations around World Economic Forum, Mercer and the OECD in which
the world. Recent and pending regulatory changes help we share with you the insights from personal interviews
employers manage changes in benefits across with 200 CEOs, senior executives, government
boundaries. WBEG offers data for 64 countries; the 2009 ministers, academics, and NGO representatives on
edition is available in five regional volumes. healthcare and pensions issues. You are welcome to
download the associated two publications at:
http://www.imercer.com/wbeg
http://www.mercer.com/wef
113
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