EMPLOYEE RETIREMENT BENEFIT SECURITY ACT [See entire ACT]

CHAPTER Ⅲ Defined Benefit Retirement Pension Plan

Article 13 (Establishment of Defined Benefit Plans)

Any employer who intends to establish a defined benefit plan shall prepare rules for defined benefit plan stipulating the following matters with the consent of, or after seeking opinions from, the representatives of employees under Article 4 (3) or 5 and shall report such rules to the Minister of Employment and Labor:

1. Matters concerning the selection of a retirement pension trustee;

2. Matters concerning participants;

3. Matters concerning the period of contribution;

4. Matters concerning the amount of benefits;

5. Matters concerning the securing of ability to pay benefits;

6. Matters concerning the types of benefits, eligibility requirements, etc. of recipients;

7. Matters concerning the conclusion and termination of contracts to provide operational management services under Article 28 and asset management services under Article 29, and transfer of contracts following the termination thereof;

8. Matters concerning notification of the current state of operation;

9. Matters concerning the occurrence of a ground for the payment of benefits, such as the retirement of a participant, and procedures for the payment of benefits;

10. Matters concerning the grounds, procedures, etc. for the abolition and suspension of the retirement pension plan;

11. Other matters prescribed by Presidential Decree to operate the defined benefit plan.

Enforcement Ordinance

Article 4 (Matters to be Stipulated in Defined Contribution Retirement Pension Rules)

(1) “Other matters prescribed by the Presidential Decree” in subparagraph 11, Article 13 of the Act means the following matters:
1. Matters concerning calculation and payment of liability fees;
2. Matters concerning liability fees for carrying out operational management services under Article 28 of the Act (hereinafter referred to as “operational management services”) and asset management services under Article 29 of the Act (hereinafter referred to as “asset management services”);
3. Matters regarding methods and procedures for educating pension holders, etc.;
4. Matters on how the business will be managed, if there is a contract on operational management services with a multiple number of retirement pension trustees. In such cases, if a pension holder fails to designate an individual retirement pension plan account, matters regarding the designation of a retirement pension trustee to whom the benefits shall be transferred under Article 17 (5) of the Act, shall be included.
(2) A retirement pension trustee who calculates liability fees under paragraph (1) 1 shall consider the estimated amount of expected expenses for future benefits, the estimated amount of revenues, etc. to maintain financial balance in the long term, and the detailed standards shall be prescribed by the Ordinance of the Ministry of Employment and Labor.
(3) An employer shall pay liability fees regularly more than once every year.
(4) The fees under paragraph (1) 2 shall be borne by the employer.
(5) Detailed matters concerning the methods and procedures for educating pension holders, etc. under paragraph (1) 3 shall be prescribed by the Ordinance of the Ministry of Employment and Labor.
(6) An employer who makes a contract on operational management services with a multiple number of retirement pension trustees, shall select one of the retirement pension trustees as representative retirement pension trustee (hereinafter referred to as “secretariat”) and have it carry out the services specified in each item of Article 22 (1) 3.

Article 14 (Contribution Period)

(1) The period of contribution prescribed in subparagraph 3 of Article 13 shall be the period of service in the business concerned since the establishment of the retirement pension plan.

(2) The period of service before the establishment of the retirement pension plan concerned may be included in the period of contribution. In such cases, the period for which a retirement allowance is settled in advance under Article 8 (2) shall be excluded therefrom.

Article 15 (Amount of Benefits)

The amount of benefits referred to in subparagraph 4 of Article 13 shall be determined in a way that the amount of lump-sum benefits calculated on the basis of the retirement date of a participant shall not be less than a prorated amount equivalent to the average wages earned for 30 days for each year of his/her continuous service.

Article 16 (Securing, etc. of Ability to Pay Benefits)

(1) In order to secure the ability to pay benefits, an employer who has established a defined benefit plan shall reserve at the end of each business year an amount which is not less than the amount obtained by multiplying the larger of the following amounts (hereinafter referred to as "standard policy reserve") by the rate prescribed by Presidential Decree, which is not less than 60/100 (hereinafter referred to as "minimum reserve"): Provided, That where the period of service before the establishment of the retirement pension plan concerned is included in the period of contribution under Article 14 (2), the rate shall comply with the one prescribed by Presidential Decree:

1. The amount calculated by the method prescribed by Ordinance of the Ministry of Employment and Labor, which is obtained by deducting the present value of the estimated revenues accruing from contributions for the future period of service from the present value of the estimated expenses incurred in paying benefits for the contribution period until the estimated time of retirement;

2. The amount calculated by the method prescribed by Ordinance of the Ministry of Employment and Labor, using the estimated expenses incurred in paying benefits for the contribution period until the last day of the business year concerned of a person who is or was a participant.

(2) A retirement pension trustee who operates and manages a defined benefit plan shall ascertain whether the reserve calculated as prescribed by Ordinance of the Ministry of Employment and Labor exceeds the minimum reserve and notify the employer of the result thereof as prescribed by Presidential Decree within six months after the end of each business year: Provided, That he/she shall also inform the result thereof to the representatives of employees, if it falls short of the minimum reserve.

(3) If the reserve is found to fall short of the minimum reserve prescribed by Presidential Decree as a result of ascertainment under paragraph (2), the employer shall make up for a deficiency in the reserve as prescribed by Presidential Decree.

(4) In the event that the reserve at the end of each business year is found to exceed the standard policy reserve as a result of ascertainment prescribed in paragraph (2), the exceeding portion may be offset against the contributions to be paid in the future, and where the reserve at the end of each business year exceeds 50/100 of the standard policy reserve, the exceeding portion may be refunded to the employer, if requested by the employer.

Enforcement Ordinance

Article 5 (Minimum Level of Reserves Under Defined Benefit Retirement Pension Plan)

(1) “Ratio prescribed by the Presidential Decree” in the main sentence of Article 16 (1) of the Act, besides each subparagraph means the ratio of reserves to standard liability reserves, under Article 16 (1) of the Act (hereinafter referred to as “standard liability reserves”) and shall be classified as follows:
1. From July 26, 2012 to December 31, 2013:60/100;
2. From January 1, 2014 to December 31, 2015:70/100;
3. From January 1, 2016 to December 31, 2017:80/100;
4. January 1, 2018 and beyond:a ratio of not fewer than 80/100 prescribed by the Ordinance of the Ministry of Employment and Labor.
(2) “Ratio prescribed by the Presidential Decree” in the proviso of Article 16 (1) of the Act besides each subparagraph means if the working period in the business before the establishment of retirement pension plan pursuant to Article 14 (2) of the Act (hereinafter referred to as “past service period” in this paragraph);the ratio of reserves to standard liability reserves if the past working period is included in the duration, according to the ratio determined and announced by the Minister of Employment and Labor, based on number of years of past working period and differential rate by subscription period.

Enforcement Ordinance

Article 6 (Notification of Results of Financial Review)

(1) After comparing the amount of reserves calculated under Article 16 (2) of the Act and the minimum reserves under Article 16 (1) of the Act (hereinafter referred to as “minimum reserves”), a retirement pension trustee shall inform the employer in written form, whether there is any shortage in reserves, current state of reserves and contributions paid, whether a financial stabilization plan is established under Article 7 (2) 1, etc. Provided that if the amount of reserves is less than that of minium reference, the retirement pension trustee shall notify:to a labor union in written form if there is a union representing a majority of employees, and if there is no such union, to all employees in written form, or through internal bulletin board or internet.
(2) Forms necessary for the notification under paragraph (1) shall be determined and announced by the Minister of Employment and Labor.

Enforcement Ordinance

Article 7 (Criteria for Judging Shortage of Reserves and Applicable Solution)

(1) “Level prescribed by the Presidential Decree” in Article 16 (3) of the Act means 95/100 of minimum reserves:
(2) Pursuant to Article 16 (3) of the Act, an employer shall, if the amount of reserves falls short of the level specified in paragraph (1), resolve the shortage of reserves by taking the following measures:
1. The employer shall establish a concrete plan (hereinafter referred to as “financial stabilization plan”) containing measures to finance the amount of shortage, a contribution plan, etc. to resolve the shortage of reserves and thus, to achieve balance within three years, and shall preserve it for three years;
2. The employer shall, if there is a labor union representing a majority of employees, notify that labor union about the financial stabilization plan, and if there is no such labor union, notify all workers and the retirement pension trustee of the financial stabilization plan, within 60 days after the date when he/she is notified by the retirement pension trustee of the results of a financial review pursuant to Article 6;
3. The employer shall faithfully implement the financial stabilization plan, such as by paying contributions to make up for the shortage of reserves.

Article 17 (Types of Benefits, Eligibility Requirements of Recipients, etc.)

(1) The types of benefits under a defined benefit plan shall be either an annuity or a lump-sum benefit, and the eligibility requirements of recipients shall be as follows:

1. Annuities shall be paid to persons aged 55 or over, whose contribution period exceeds 10 years. In such cases, the payment period thereof shall exceed five years;

2. Lump-sum benefits shall be paid to participants who fail to meet the eligibility requirements to receive annuities or wish to receive lump-sum benefits.

(2) An employer shall ensure that a retirement pension trustee pays all the benefits that it is obligated to pay within the limit of the reserve (in cases of bankruptcy of a business or other cases prescribed by Presidential Decree, the amount corresponding to the rate of the reserve to the amount prescribed in Article 16 (1) 2) within 14 days after a ground for the payment occurs as prescribed in paragraph (1), such as retirement of the participant: Provided, That in extraordinary circumstances, such as where the sale of the employed assets that have been invested with the reserve under a retirement pension plan is not made within a short period of time, the payment date may be extended by agreement among the employer, participants, and the retirement pension trustee.

(3) When the amount of benefits paid by a retirement pension trustee under paragraph (2) falls short of the amount of benefits prescribed in Article 15, the employer shall pay the deficiency to the relevant employee within 14 days after a ground for the payment of benefits occurs. In such cases, the payment date may be extended by agreement between the parties.

(4) The benefits prescribed in paragraph (2) or (3) shall be paid in the way of transfer to the account of an individual retirement pension plan designated by each participant; Provided, That this shall not apply where any ground prescribed by Presidential Decree exists, such as where a participant receives such benefits after retiring at the age of 55 or over.

(5) Where a participant fails to designate an account of an individual retirement pension plan under paragraph (4), the benefits shall be transferred to an account operated by the retirement pension trustee concerned. In such cases, the participant shall be deemed to have established an individual retirement pension plan at the retirement pension trustee concerned.

Enforcement Ordinance

Article 8 (Reasons for Exceptions in Payment of Full Benefits)

“Cases prescribed by the Presidential Decree, such as business bankruptcy” in the main sentence of Article 17 (2) of the Act means any of the following cases:
1. Where an employer has been declared bankrupt under the Debtor Rehabilitation and Bankruptcy Act;
2. Where an employer has received a decision for commencement of rehabilitation procedures under the Debtor Rehabilitation and Bankruptcy Act;
3. Where an employer falls under subparagraph 2 or 3 of Article 5 (1) of the Enforcement Decree of the Wage Claim Guarantee Act as a result of verification under Article 16 (2) of the Act.;
4. Where the ratio of reserves to standard liability reserves is lower than the ratio specified in Article 5 (1). In such situation, even when the working period in the same business before the establishment of a retirement pension plan is included in the period of contribution, the ratio specified in Article 5 (1) shall be applied;
5. Where the following value is higher than the ratio determined and announced by the Minister of Employment and Labor:
(The total amount of retirement benefits paid to pension holders in the business, since business start date) / (The amount of reserves as of business start date+the total amount of contributions paid since business start date)
6. Other cases prescribed by the Ordinance of the Ministry of Employment and Labor, where paying full benefits may restrict other employees’ right to receive benefits.

Enforcement Ordinance

Article 9 (Reasons for Exceptions in Transferring to Individual Retirement Pension Plan)

“Reasons prescribed by the Presidential Decree, such as when a pension holder retires after the age of 55 and receives benefits” in the proviso of Article 17 (4) of the Act means any of the following cases:
1. Where a pension holder retires after age of 55 and then receives benefits;
2. Where a pension holder has to repay the amount of loans, etc., in security for benefits under Article 7 (2) of the Act. In such situation, the amount not transferred to the individual retirement pension plan account designated by the pension holder shall not exceed the amount of amount of redemption of the loan.
3. Where the amount of retirement benefits is not more than the amount determined by the Minister of Employment and Labor.

Article 18 (Notification of Current Status of Operation)

Each retirement pension trustee shall notify participants of the amount of reserve, rate of returns, etc. at least once every year, as prescribed by Ordinance of the Ministry of Employment and Labor.

Article18-2

For further questions, please
call (+82) 2-539-0098 or email bongsoo@k-labor.com

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