In Taiwan, the labor pension reserve fund is the fund from which
employees eligible for the pension scheme under the Labor Standards
Act ("LSA") (generally referred to as the "Old
Pension Scheme") receive their pension payments upon
retirement. Pursuant to the old LSA, employers were required to
contribute between 2 percent and 15 percent of their total monthly
payroll to the labor pension reserves fund. Employers were required
to take into consideration the length of service of their
employees, their employee wage structures, employee turnover rates,
and other factors when determining their contribution rate.
However, more than 80 percent of employers have been contributing
to the labor pension reserves fund at just the 2 percent minimum
In recent years, the insufficient funding of the labor pension
reserve fund has led to an uptick in disputes between employees and
employers over outstanding pension and severance payments after the
employer had ceased operations or been declared bankrupt. In light
of this, the LSA was amended on February 4, 2015, to require
employers to annually review whether their funding of the labor
pension reserve fund is sufficient to cover the total amount of
pension payments to employees who are eligible for retirement
within a year. If necessary, employers must make up for any
shortfalls by March 31 of the following year. In conjunction with
the amendment of the LSA, the Ministry of Labor has also introduced
rules on how to calculate the adequate level of funding of the
labor pension reserve fund, so that employers are prepared for the
implementation of the LSA amendments.
As a consequence of the amendments, employers can no longer
contribute to the fund at just the 2 percent minimum contribution
rate. Any employer who fails to fulfill the funding requirements
will be liable for fines ranging from NT$90,000 to NT$450,000.
Local governments have begun issuing such fines as of July 2016.
Since the implementation of the amended LSA, labor pension reserves
fund contributions by employers have skyrocketed. According to
statistics released by the Ministry of Labor in July 2016, historic
yearly contributions to the labor pension reserve fund by employers
averaged approximately NT$60 billion per year. By way of
comparison, in 2015, employer contributions to the labor pension
reserve fund totaled NT$83.6 billion, whereas in the first six
months of 2016, employer contributions had already reached NT$167.4
billion. Additionally, the number of employers who have met the
funding requirements has grown to 98,000, representing more than 80
percent of all employers.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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