HR Tips, Labor Law Updates effective from April 14, 2022

l Mandate to transfer traditional severance pay to Individual Retirement Pension (IRP) account opened with an external retirement pension management company

Before this amendment of ERBSL, only the retirement payment for resigning/terminated employees who are enrolled in retirement pension scheme (either Defined Benefit or Defined Contribution type) shall be transferred to Individual Retirement Pension (IRP) account opened under the name of the resigning/terminated employee.

However, effective from April 14, 2022, under the amended ERBSL provisions, severance pay to be made to employees who are under the traditional severance pay scheme shall also be transferred to their respective IRP account. Such IRP account can be opened only by the employee himself/herself. When transferring severance pay to the IRP account of the employee concerned, the employer shall specifically designate it as tax deferred severance pay and pay in “gross” amount without withholding taxes.

We bring this agenda for special attention to companies who currently have the traditional severance pay scheme and have not yet adopted the retirement pension scheme for their employees in Korea.

For the transfer of severance pay to IRP account as of the termination date, companies under the traditional severance pay scheme should make sure to collect the information from the resigning/terminated employee including the following.

(1) Copy of the IRP account bank passbook which indicates the account holder name, account number, retirement pension management company name and contact details (퇴사자 명의의 IRP계좌 통장사본, IRP계좌 명의자, 계좌번호, 연금계좌운용사 및 연금계좌담당자 전화번호 포함)

(2) Business entity registration certificate number/tax registration number of the retirement pension management company (연금계좌운용사의 사업자등록번호)

l Assessment of penalty if fail to deposit legal minimum reserves for Definite Benefit type retirement pension scheme

Previously, for employers who adopted the retirement pension scheme as the Defined Benefit type, in the case where the employer fails to deposit the legal minimum reserves or more with the external retirement pension management company, such employer shall be obligated to prepare a financial stabilization plan and notify to the representative of their employees (근로자대표). However, even in the case where the employer fails to resolve the legal minimum reserve shortage issues, there were no penalties imposed to the employer.

However, effective from April 14, 2022, for employers who fail to resolve the legal minimum reserve shortage issues by depositing at least one-third or more of such shortage within 1 year period shall be subject to fines of up to maximum KRW 10 million.

This amendment shall apply to an employer who receives a Notification of Results of Financial Review from their external retirement pension management company that the employer falls short of legal minimum reserve deposit requirement on or after April 14, 2022, and the employer concerned shall be required to resolve this shortage issue by depositing the shortage amount within one year from the end of the immediately preceding fiscal year, not from the notification delivery date.

l Mandatory establishment of a retirement pension reserve management committee for companies who adopted Defined Benefit type retirement pension scheme and have 300 or more of regular workers

Under the amended ERBSL, companies who have 300 or more regular employees (defined) and adopted a Defined Benefit type retirement pension scheme are now obligated to establish a retirement pension reserve management committee (적립금운용위원회).

Before the amendment, employers were allowed to make decisions on how to manage the reserve fund for the Defined Benefit type retirement pension at their sole discretion, which has shown problems such as low earnings as the employers tend to invest the reserve funds mainly in financial instruments that guarantee principal with low interest earnings. Under the amended ERBLS, establishing a retirement pension reserve management committee is now mandatory in an effort to improve operation of reserve funds more reasonably.

If employers fail to comply with this reserve management committee establishment requirement or does not prepare a reserve fund management plan, a fine of up to KRW 5 million can be imposed.