Occupational pensions under debate: pluses and minuses
Ministry of Labour has posted on its website, the law draft on occupational pensions. Enforcement of this law would enrich the content of the Pillar III private pension, bringing Romanian employees the opportunity to add an additional source of income at the retirement age. Besides its merits in expanding saving opportunities for retirement, the content of the project raises certain questions, the answer of which might strongly influence the willingness, both of the employers and the fund managers, to engage in the development of this new market segment.
Thus Article 1. (2), "the right to propose an occupational pension scheme belongs to the employer alone or in association with other employers, in consultation with employee representatives"; (3) stresses that "employers, economic agents that register overdue budgetary obligations to the late state budget, state social insurance budget, local budgets, unemployment insurance, the budget of the national social insurance fund and health insurance system for work accidents and occupational diseases can not contribute to occupational pension schemes". The draft law does not say what happens if an employer which satisfied this condition at the creation moment of the pension scheme, accumulated debts to the state institutions after the entry of the occupational pension fund. Does he have the right to pay contributions to pension fund as long as not to liquidate debts to the state? If not, such an employer could also face an accumulation of substantial penalties issued by the occupational pension fund manager, which according to the bill, has the obligation to notify the market authority, the employer and all the participants minding the failure of payment by the employer and also the right to levy penalties and interest for delay "in accordance with current regulations on the amounts paid to the budget period for obligations". (Art. 75 (6))
The bill also contains a "vesting" condition, which should encourage employers to use occupational pensions as means of labor force stabilization. Thus Art 73 (3) states that "ownership of the participating employer's contribution on behalf of the employee to a pension fund management as well as the results of investing these contributions, goes to the employee after a period of at least two years after joining the pension fund, according to collective labor agreement / protocol and administration contract". In other words, for each employee participating in occupational pension scheme, the employer pays a contribution to the fund, however, remains his property for two years. Although the bill does not explicitly mention this fact, it is expected that employees who leave the company to lose accumulated assets, so motivated to keep their job at least two years after they joined the occupational pension scheme. In terms of administrative and accounting for both the administrator and the employer, the existence of this condition may cause certain difficulties. Most likely, the actual operational mechanism will involve managers following in parallel for each participant, an account which is actually two accounts in logic association, while the employer will require beyond the financial effort a particular accounting treatment for the contribution's amounts.
Finally, to note that apart from Pillar's III legislation requirements, this bill provides lower fee limit value charged by administrators. Thus the contribution fee, capped at 5% in Pillar III may not exceed 3% for occupational pension funds. This limitation is difficult to understand, given that it is expected, considering the structure of labor markets in Romania, as most of the occupational funds have a relatively small number of participants, not allowing scale economies. Moreover, considering that, for each pension plan in hand, "costs" of administration will be negotiated between interested managers and employer founder, most likely keeping rate of 5% of Pillar III would have been enough, leaving its mechanisms lower costs for competitive participants.
It remains to be seen whether, considering that the occupational pension funds administration is more "expensive", through more complicated procedures and additional costs, this potential market will be sufficiently attractive to operators. It should be noted, however, a high "plus" on the law draft on occupational pensions brought by: full tax contribution deductibility, provided by the bill. Thus mentioned in Article 75 (8) "the sum representing contributions to the occupational pension fund, provided under (2) each participant is deductible from gross salary income assimilated to his monthly income" and in paragraph (9) "the sum representing contributions to the occupational pension fund of an employer is deductible in calculating taxable income for each participant".
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