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September 2009

Mercer Introduction to Benefit Plans Around the World


September 2009

Contents
1. Mercer/Marsh Global Presence..................................................................................................................................................................................................... 2

2. Contact Information ...................................................................................................................................................................................................................... 3

3. Executive Summary ...................................................................................................................................................................................................................... 4

4. Definitions................................................................................................................................................................................................................................... 11

5. Country Snapshots ...................................................................................................................................................................................................................... 12

6. Popular Resources..................................................................................................................................................................................................................... 113

Page Page Page Page


AMERICAS ASIA PACIFIC EASTERN EUROPE, WESTERN EUROPE
MIDDLE EAST, AFRICA
Argentina 12 Australia 28 Czech Republic 58 Austria 78
Brazil 14 China 30 Greece 60 Belgium 80
Canada 16 Hong Kong 32 Hungary 62 Denmark 82
Chile 18 India 34 Israel 64 Finland 84
Colombia 20 Indonesia 36 Poland 66 France 86
Mexico 22 Japan 38 Russia 68 Germany 88
USA 24 Malaysia 40 Slovakia 70 Ireland 90
Venezuela 26 New Zealand 42 South Africa 72 Italy 92
Pakistan 44 Turkey 74 Luxembourg 94
Philippines 46 United Arab Emirates 76 Netherlands 96
Singapore 48 Norway 98
South Korea 50 Portugal 100
Taiwan 52 Spain 102
Thailand 54 Sweden 104
Vietnam 56 Switzerland 106
United Kingdom 108

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

1. Mercer/Marsh Global Presence

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.

Global Report Team

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)

Global Project Manager


Rivkah Pontos (Rivkah.Pontos@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.

About Mercer and Marsh

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.

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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 ƒ 27% of companies have either already reduced contributions to DC plans or plan to do so
ƒ 10% of companies have cut back or stopped accruals in DB plans
ƒ 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:
ƒ 29% have recently added wellness programs and a further 38% reported that they are likely to do so in the near future
ƒ 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
ƒ 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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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:
ƒ 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
ƒ Similar percentages of employers plan to review the investment fund line up available, including the default options and lifecycle
funds
ƒ 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.
ƒ Over 70% of companies have identified risk identification and mitigation as a priority in the context of retirement plans.
ƒ 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

3.2. Retirement – Prevalence and Types of Supplementary Plans

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

Canada Taiwan France

Chile Thailand Germany


Colombia Vietnam
Ireland
Mexico E. EUROPE, ME&A
Italy
USA Czech Republic
Luxembourg
Venezuela Greece

ASIA PACIFIC Hungary Netherlands

Australia Israel Norway

China Poland Portugal


Hong Kong Russia
Spain
India Slovakia
Sweden
Indonesia South Africa
Switzerland
Japan Turkey

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

3.3. Medical – Prevalence of Supplementary Benefits


Typically provides supplement for executives only
Typically provides supplement (equal benefit level for all employee levels)
Typically provides supplement for all employees (higher benefit level for executives or benefit level varies by employee level)

Approximate % of Multinational and Leading Local Companies 0 20 40 60 80 100


0 20 40 60 80 100
0 20 40 60 80 100 ASIA PACIFIC
W. EUROPE
AMERICAS New Zealand
Austria
Pakistan
Argentina
Philippines Belgium
Brazil
Singapore Denmark
Canada
South Korea Finland
Chile
Taiwan France
Colombia Thailand
Germany
Mexico Vietnam
Ireland
USA E. EUROPE, ME&A
Czech Republic Italy
Venezuela
ASIA PACIFIC Greece Luxembourg

Australia Hungary Netherlands


Israel Norway
China
Poland
Hong Kong Portugal
Russia
India Spain
Slovakia
Indonesia Sweden
South Africa
Japan Turkey Switzerland
Malaysia UAE UK
Belgium, Canada, France, Greece, New Zealand: Benefit level may vary by employee level, although this is not prevalent. Australia: Practice varies; no typical practice. China: Higher medical benefits for foreign employees. Finland:
For 90% of employee contracts, scope of mandatory occupational health care service is expanded; only 25% of companies provide supplementary medical coverage. Germany: 90% of German employees are in a social sickness fund and
receive basic health coverage; 10% of German employees have upgraded health coverage through private health insurance (possible only for employees earning over the SSCC). Hungary: 77% of companies provide coverage through a
voluntary health fund (VHF), either as a core benefit or as part of a flex plan; 7% provide private medical insurance (all as part of a flex plan). Italy: Trend is to provide to nonexecutives (40%), although majority of plans still cover
executives only. Japan: Nearly all multinationals and local leading companies opt out of the Employees’ Health Insurance (EHI) and provide alternative compulsory medical coverage through Health Insurance Associations (HIA). Less
than one-third provide hospitalization insurance on top of EHI/HIA. Mexico: 100% of multinationals and local leading companies provide major medical insurance to nonunion employees; 10% provide minor medical coverage.
Netherlands: Residents are covered through a collective program; 68% of multinationals and local leading companies negotiate group discounts for employees, while 50% of companies provide a monthly allowance for medical coverage.
Spain: Typically medical assistance is provided to all employees and a medical reimbursement plan to executives. Switzerland: Mandatory individual health insurance; 90% of companies provide employees with monthly allowance toward
the cost of individual coverage. Taiwan: Typically multinationals provide one plan that covers both executives and other employees, while local companies have two separate plans. Turkey: Plan typically covers white-collar employees
only; executives have a separate plan in half of cases. Venezuela: 100% of multinationals and large local companies offer basic supplemental medical coverage; 3% provide surplus plan (major medical).

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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 ƒ Significant change to the financing of private health insurance. ƒ 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 ƒ The table of legal dismissal indemnities has changed. The new table ƒ 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 ƒ All foreign workers in India from countries with which India has not ƒ 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 ƒ New National Pension Scheme (NPS) launched. The scheme is ƒ Consider use of NPS for supplemental retirement saving.
available to all citizens. It offers investment and provider choice.

Ireland ƒ Amendments to the Pensions Act 1990 change priority orders on ƒ 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 ƒ Changes to standard maternity leave, effective January 1, 2009, and ƒ Employers must comply with the new standards when granting
additional maternity leave, effective January 1, 2014. Paternity leave maternity/paternity leave.
also extended.

Russia ƒ Government incentives introduced to encourage saving for retirement. ƒ 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 ƒ New early retirement clause in the Labor Standards Act permits ƒ Employers should amend policy documentation and also reflect the
retirement at age 60 with 10 years’ service. change in financial accounting.

UK ƒ Increases to pensions for early leavers in defined benefit schemes can ƒ 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 ƒ Pensions Regulator statement issued to assist trustees and employers in ƒ No employer action required. Companies should be aware of the
dealing with contribution affordability. statement when negotiating.

ƒ Pensions Regulator has power to fine employers that fail to comply with ƒ Employers must be sure to meet the necessary requirements, or they
employee consultation requirements. face a penalty of up to GBP 50,000.

UK ƒ Proposed changes to UK pension tax relief for those earning more than ƒ 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 ƒ Changes to “failure score” element of PPF levy formulae could affect ƒ Monitor D&B ratings in the period up to March 2010 to ensure no
costs. surprises.

USA ƒ Auto-enrollment regulations of the Pension Protection Act (2006) ƒ Employers must comply with the rules that apply retroactively.
issued.

USA ƒ New restrictions on executive remuneration and benefits for companies ƒ 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

3.5. Retirement – Plan Eligibility in a Typical Supplementary Plan


One plan only for executives, management and/or higher earners ASIA PACIFIC
W. EUROPE
One plan only for all employees New Zealand
One plan for all employees, and higher benefits (through same or Austria
Pakistan
separate plan) for top employees
* Exceptions apply Philippines * Belgium
Singapore Plan not prevalent Denmark
AMERICAS
* Argentina * South Korea Finland
Brazil Taiwan France
Canada Thailand Germany
Chile Vietnam Plan not prevalent
Ireland
Colombia E. EUROPE, ME&A
* Mexico Italy
Czech Republic
USA Greece Luxembourg
Venezuela Netherlands
Hungary
ASIA
Israel Norway
Australia
* Poland Portugal
China
Russia
Hong Kong Spain
India Slovakia
Sweden
Indonesia South Africa
Switzerland
Japan Turkey
* Malaysia UAE UK

3.6. Retirement – Plan Financing in a Typical Supplementary Plan**


ASIA PACIFIC
W. EUROPE
Unfunded Funded and/or Insured New Zealand
Austria
Pakistan
AMERICAS
Philippines Belgium
Argentina
Singapore Plan not prevalent Denmark
Brazil
South Korea Finland
Canada
Taiwan France
Chile
Thailand
Colombia Germany
Vietnam Plan not prevalent
Mexico Ireland
E. EUROPE, ME&A
USA Italy
Czech Republic
Venezuela Luxembourg
Greece
ASIA PACIFIC
Hungary Netherlands
Australia Israel Norway
China Poland
Portugal
Hong Kong Russia
India Spain
Slovakia
Indonesia Sweden
South Africa
Japan Turkey Switzerland
Malaysia UAE UK
** In light green-only countries, plans are typically funded. In dark green/light green countries, plans are typically partially funded, or both funded and unfunded approaches are used.
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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:

All Benefits Retirement Medical, Sickness, Disability & Death


ƒ Key Legislation: Recently approved or proposed ƒ DB: Defined benefit retirement plan. ƒ AD&D: Accidental death and dismemberment.
crucial legislation that affects benefit plans and has an
ƒ DC: Defined contribution retirement plan. ƒ Dependent Coverage: Describes whether the plan
impact on employers.
provides coverage for dependents. Dependent category
ƒ Executive-only Plans: Either a retirement plan
ƒ Mandatory Practice: Benefits provided by social includes the spouse and dependent children, unless
exclusively for higher-earning employees or plan under
security or mandatory employer-sponsored plan. otherwise stated in a Country Snapshot.
which a higher contribution or defined benefit is
ƒ MFR/MFS: Minimum funding requirement/minimum provided to this group through the same retirement plan ƒ GP: General practitioner.
funding standard. as for other employees.
ƒ Inpatient: Services provided under direction of a
ƒ Opportunities and Trends: Key changes in the ƒ Hybrid: Mixture of defined benefit and defined physician for at least 24 hours to an individual who is
benefit plan environment that present opportunities for contribution features in a single plan. Examples include: admitted to a hospital as a registered bed patient.
employers.
o A defined contribution plan that provides a ƒ LTD: Long-term disability.
ƒ Prevalence: Indicates how commonly the plan is guaranteed minimum defined benefit payment upon
ƒ Medical Inflation: National average rate of increase in
provided by multinational and local leading retirement;
medical care costs, shown as percent change over the
companies. Prevalence percentages are based on
o A defined contribution plan with benefit at retirement previous year. Not all countries report this statistic.
Mercer’s Total Remuneration Surveys and on senior
age equal to accumulated contributions plus interest Typical source is a government agency.
Mercer consultants’ experience working with these
or a fixed formula benefit, whichever benefit is
companies in the local market. ƒ Outpatient: Services provided to an individual who is
higher; or
admitted to a hospital or clinic for treatment that does
ƒ Threats and Restrictions: Key aspects of the benefit
o Company provides DB plan for existing employees not require an overnight stay.
plan environment that restrict or threaten establishment
and DC plan for new hires (in effect, two separate
and/or management of a supplementary plan. ƒ Rider: Indicates whether a benefit is financed as part of
plans).
another policy. For instance, the dental benefit may be a
ƒ Typical Market Practice: Describes typical (half or
ƒ Mandatory Termination Indemnity: Lump-sum rider to the medical plan.
more than half of companies), nonindustry-specific,
payment that must be made by the company (or that has
general market practice for supplementary benefits ƒ Self-funded/Self-insured: When a company finances
been prefunded by the company, possibly through an
provision by employers that include multinational and the benefit internally (as opposed to using an external
outside agency other than social security) when an
local leading companies. Does not describe any insurance policy).
employee retires.
subgroup differences in practice that may exist.
ƒ STD: Short-term disability.
ƒ NRA – M/F: Normal retirement age: male (age)/female
(age). ƒ TPD: Total permanent disability.
ƒ SSCC: Social security contribution ceiling.
ƒ Vesting: Acquisition by a plan member of an absolute
right to an immediate or deferred benefit by fulfilling
prescribed conditions, especially service requirements.

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Copyright 2009 Mercer LLC. All rights reserved.
Mercer Introduction to Benefit Plans Around the World – Americas
September 2009

Argentina Author: Héctor Gueler at HGueler@fmasoc.com


Peer Reviewer: Anamaria.Weisz@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Since January 1, 2009, a new legislative reform has been in force. PLAN NAME The private system, AFJP (Administradora de Fondos de
Practice The private system was cancelled, and employees can participate Jubilaciones y Pensiones), is no longer in place, and the government
fully only in the state pay-as-you-go system. transferred the funds of the private pensions system to the National
Social Security Administration.
Typical Market Approximate: Not prevalent. PLAN ELIGIBILITY Management only or higher-earning employees (74% of plans) or all
Practice % of multinational employees (26% of plans).
and local leading NORMAL RET. AGE 65 males/60 females.
companies with a
BENEFIT FORMULA Accumulation of contributions with interest.
supplementary plan
27% DEATH & DISABILITY Included in retirement plan: Death – No. Disability – No.
VESTING Employer contributions normally vest after five to 10 years of service
with the company.
% of supplementary
plans EMPLOYEE All employees are required to contribute 3.5% of salary below the
CONTRIBUTION social security salary cap (ARS 8,712 per month – this amount
DB: 7% should be updated twice a year, based on inflation and salaries
DC: 93% evolution) and 7.5% of salary in excess of the mentioned cap. A few
companies recognize past service.
Hybrid: 0%
EMPLOYER Company normally matches 100% of employee contributions (80%
CONTRIBUTION of plans).
Executive-only
FINANCING 40% of plans are financed through a trust fund; 15% of plans are on
plans
book reserves; 45% are financed through insurance companies and
Majority of plans for pension funds administrators.
management only or
FORM OF PAYMENT Lump sum, although annuities are being seen in the market.
higher earners
HYBRID ALTERNATIVES Not prevalent.
OTHER Employee investment choice: New plans financed through trust
funds generally offer three or four choices.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ No legislation on private retirement programs, which means that ƒ Increase in the prevalence of pension plans is expected, as the ƒ Congress approved an adjustment scheme for social security
there is essentially total plan-design flexibility. current social security system does not guarantee a sufficient benefits, using the average of last year’s salary as the base for
ƒ For trust funds, there is a lack of a clear legal definition of tax retirement benefit and real projected benefits are decreasing due the initial benefit calculation.
to high inflation. Congress approved a new law that:
treatment of contributions and benefits. ƒ
ƒ Move toward DC. o Cancelled the private pension system, leaving the state
ƒ Almost all new plans are financed through trust funds, because pay-as-you-go DB as the only system in force.
only trust funds can invest assets outside of Argentina
o Transferred the accumulated funds of the private pensions
without restrictions. Insurance companies can invest their funds system to the National Social Security Administration.
outside of Argentina but this is subject to certain restrictions.
ƒ Plans financed through AFJP should be moved to another
financial vehicle.

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

Argentina Author: Marina.Mourguy@mercer.com


Peer Reviewer: Laura.Roldan@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Programa Medico ƒ Benefits Provided by Social Security: Long-term disability (LTD) – ƒ Benefits Provided by Social Security: Pension by state and
Obligatorio (PMO), a mandatory medical program – Outpatient, lump sum and income continuation. private pension fund, with 70% of prospective retirement benefits
hospitalization, ambulance, dental and vision services are ƒ Benefits Provided by Employer: Employer paid short-term for the spouse or 50% if there are children (plus 20% for each
provided. child). The aggregate pension cannot exceed 100%.
disability (STD) benefits and workers’ compensation benefits
ƒ Plan Eligibility: All employees and their families. provided through ARTs (insurance companies through which ƒ Benefits Provided by Employer: Mandatory Life – Lump-sum
ƒ Plan Financing: Contributions to social security. employers must provide insurance for their employees). benefit of ARS 6,750 for death by natural causes. The benefit is
ƒ Plan Eligibility: All employees are eligible. increased by 50% for non-work-related deaths.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Financing: LTD – Contributions to social security. STD – by ƒ Plan Eligibility: All employees.
Needs? Inadequate.
employer. The employer must pay sickness benefits for the first ƒ Plan Financing: A fixed contribution paid per member, per month
10 days of any sickness period. After this time, the ART will make to insurance companies.
payments to the employee. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ How Adequate Are Mandatory Benefits in Meeting Employee Needs? Adequate for lower-paid employees, inadequate for high
Needs? Adequate. earners.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD). ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: 98% of multinational and local leading companies. ƒ Prevalence: The majority of companies that provide ƒ Prevalence: 67% of multinational and local leading companies.
ƒ Plan Eligibility: All employees. Note that 66% of the companies supplemental death coverage provide TPD. ƒ Plan Eligibility: 78% of companies offer life and AD&D to all
offer different levels of medical coverage (more generous at ƒ Plan Eligibility: All employees. employees; the other 22% offer coverage to high-level
higher job grade). Two, three or more coverage levels are ƒ Benefit Description: Lump sum equal to life insurance policy. employees only (managers, directors, etc.).
typical, with executives covered under a separate plan.
ƒ Employee Contributions: None. ƒ Benefit Description: Natural death – 24 times monthly salary;
ƒ Dependent Coverage: Yes. AD&D – 48 times monthly salary. Note that 70% of companies
ƒ Plan Financing: Insurance policy. apply a maximum cap on all death benefits (median cap of ARS
ƒ Benefit Description: Outpatient services, hospitalization,
ƒ Is Coverage Part of Another Plan? Yes, as a rider to the life 500,000).
ambulance services, dental, psychological services.
insurance policy. ƒ Employee Contributions: 0% to 50% of cost (77% of employers
ƒ Employee Contributions: None for employee. None for
pay 100% of cost).
dependent coverage.
ƒ Plan Financing: Private medical plans are prepaid. ƒ Plan Financing: Self-funded or insurance policy.

ƒ Is Coverage Part of Another Plan? No. ƒ Is Coverage Part of Another Plan? No.

MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT


Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ High medical inflation (average annual premium increases of 25% As of March 2009:
in 2008) has led companies to analyze several aspects of their ƒ Employees are required to contribute 3% of base salary, up to
medical policies, including restricting eligibility, financing options,
the ceiling of ARS 8,711.82 per month.
and alternate medical providers/health delivery systems.
ƒ Employer is required to contribute 6% of the base salary without
cap.

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

Brazil Author: Carolina.Wanderley@mercer.com


Peer Reviewer: Eduardo.Correia@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Instituto Nacional de Seguridade Social (INSS) + mandatory PLAN NAME Mandatory termination indemnity (FGTS) – Mandatory 8% employer
Practice termination indemnity (FGTS) – 40% of the FGTS accumulated contribution based on monthly payroll plus 10% of the FGTS
balance goes to the terminated employee. balance, as a penalty to the government.
Typical Market Approximate: All employees upon date of hire, with no distinction made between PLAN ELIGIBILITY All employees upon date of hire, with no distinction made between
Practice % of the 200 biggest hourly and salaried workers. hourly and salaried workers.
companies 60 males/60 females. NORMAL RET. AGE 60 males/60 females.
(including both
Employee receives 1.7% to 2% of final pay per year of service, with BENEFIT FORMULA Accumulation of contributions with interest.
multinational and
maximum of 30 years.
local) with a
supplementary plan Death and disability benefits are typically provided in the retirement DEATH & DISABILITY Death and disability benefits are provided in the retirement plan as a
80% plan as a monthly benefit, in addition to lump sum-type insured refund of the total account balance (employee and employer) or as a
benefits. monthly benefit.
Vesting benefit: 100% after three years of plan participation. VESTING Vesting of employer contributions: After three years of plan
% of supplementary participation.
plans
Between 0% and 50% of total cost. EMPLOYEE Required. Between 2% and 6% of base pay and 13th salary.
DB: 18% CONTRIBUTION Employee usually contributes one-third to one-half of total plan cost.
DC: 78% Between 50% to 100% of total cost. EMPLOYER Company matches between 100% and 200% of employee
Hybrid: 4% CONTRIBUTION contributions.
Single-company funds (closed entity) and multi-employer funds (also FINANCING Single-company funds (closed entity), multi-employer funds (closed
closed entity). Closed entities are trust fund-type pension funds, entity) and insurance company funds (open entity, known as PGBL –
Executive-only
while open entities are retirement plans managed by insurance Plano Gerador de Benefício Livre).
plans
companies. DB products are no longer offered by insurance
Not prevalent companies.
Lifetime annuity (up to 25% as a lump sum for closed entities). FORM OF PAYMENT Closed entities: Monthly benefit in number of shares or lifetime
annuity (up to 25% as a lump sum). For open entities, lifetime
annuity or 100% as a lump sum.
Minimum (guarantee) benefit is provided (closed entity), though at HYBRID ALTERNATIVES Minimum (guarantee) benefit is provided (closed entity). Not
times very minimal, for example, a lump-sum payment equal to three common under an open entity, although it is becoming more popular
final monthly salaries. to offer this under open entities as well.
Valuations: Annually. Local accounting standard: NPC 26. OTHER Employee investment choice: Not typical yet, but it is a growing trend
to offer three or four investment funds to employees.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Too much enforced regulation (for closed entities) inhibits the ƒ The prevalence of supplementary retirement plans is high among ƒ Surplus utilization in closed entities regulated in October 2008.
establishment of new plans, especially small plans. medium and large multinational companies, but the need to ƒ Governance legislation for closed and open entities.
supplement is growing among smaller companies.
ƒ Lack of long-term bonds, lower interest rates and longer ƒ Social security benefit is being discussed.
longevity. Investment outside of Brazil is limited to a maximum of ƒ Greater development of financial education and retirement
0.6% of fund. planning services for DC plan members.
ƒ With a growing equity market, the implementation of investment
options to participants is increasing.

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

Brazil Author: Alexandre.Espinosa@mercer.com


Peer Reviewer: Rene.Ballo@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security (Instituto Nacional de ƒ Benefits Provided by Social Security: Long-term disability (LTD). ƒ Benefits Provided by Social Security: A monthly payment
Seguridade Social – INSS): Outpatient, hospitalization, Short-term disability (STD) benefits are based on 80% of average (annuity) equal to the disability pension is paid to spouse in case
ambulance services, dental, vision, work-related benefits. of last 12 monthly contribution salaries (indexed) immediately of natural or accidental death.
ƒ Plan Eligibility: All employees. before the date on which the employee becomes eligible to ƒ Plan Eligibility: All employees.
receive the benefits.
ƒ Plan Financing: Contributions to social security. ƒ Plan Financing: Contributions to social security, based on a
ƒ Benefits Provided by Employer: STD – During the first 15 days of percentage of monthly payroll.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee absence, the employer is responsible for full salary payment.
Needs? Inadequate, very poor service. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Eligibility: All employees. Needs? More than adequate for low-paid employees, but
ƒ Plan Financing: Contributions to social security. inadequate for high earners.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? More than adequate for low-paid employees, but
inadequate for high earners.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD) and short-term disability ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: 100% of multinational and local leading companies. (STD). ƒ Prevalence: 95% of multinational and local leading companies.
ƒ Plan Eligibility: All employees; it is typical to have various levels ƒ Prevalence: TPD for 95% and STD for 68% of multinational and ƒ Plan Eligibility: Death – All employees; AD&D – All employees.
of coverage/network providers by job status – Level 1: basic plan local leading companies.
ƒ Benefits Provided: Death – 24 to 30 times monthly salary for
for all employees; Level 2: intermediate plan for supervisors and ƒ Plan Eligibility: All employees. death by natural causes. AD&D – For accidental death, double
second-line managers; Level 3: top plan for executives. ƒ Benefit Description: TPD – Equal to life insurance amount. STD – indemnity of death benefit (“principal” amount). A percentage of
Employees in smaller cities may also have different coverage. Common for employers to supplement up to 100% of salary the principal amount is paid upon dismemberment.
ƒ Dependent Coverage: Yes (spouse and children only). during an initial period of three months after the first 15 days of ƒ Employee Contributions: 66% of companies require employee
ƒ Benefit Description: All health and dental benefits mentioned in absence, reduced to 75% after a three-month period and contributions (which average 40% of cost).
health care legislation (Law No. 9,656/98 and new procedures thereafter decided on case by case basis (practice varies).
ƒ Plan Financing: Insurance policy.
from National Private Health Agency as of April 1, 2008). ƒ Employee Contributions: TPD – As death benefits; STD – None.
ƒ Is Coverage Part of Another Plan? Death benefits through private
ƒ Employee Contributions: 14% on average. ƒ Plan Financing: Self-funded (STD only, usually required by CBA); retirement plan or life insurance policy; AD&D as a rider to life
ƒ Plan Financing: Prepaid plan with an insurance company or insurance policy (LTD). insurance.
through PPO or HMO. ƒ Is Coverage Part of Another Plan? TPD – Yes, as a rider to life
ƒ Is Coverage Part of Another Plan? No. insurance policy; STD – No.

MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT


Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ About 8% to 10% medical inflation (2008 national average rate of ƒ Growing trend for wellness programs in order to control health ƒ Mandatory post-employment medical coverage is being enforced
increase in medical care costs as percentage change over care cost increase in the longer term. in recent years (applies to contributory plans); this impacts FAS
previous year). ƒ Employers are reviewing eligibility clauses and plan design and accounting and increases company costs.
ƒ The private health market is becoming smaller as a result of are looking to shift employees’ contributions from fixed ƒ Senate has approved project to include mandatory fertility
continued mergers and acquisitions that consolidate the contributions to co-insurance schemes in order to avoid voluntary treatments in private medical plans. This lawmaking project must
insurance industry. post-employment extension and FAS106 liabilities. be approved by the president and, if successful, will be in place
ƒ National Health Agency (ANS) has been including new ƒ Medical inflation rate (2009 forecast): 7% to 9%. in 2010.
mandatory coverages in the private medical plans, which may
increase the cost of programs.

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

Canada Author: Tara.Middlemiss@mercer.com


Peer Reviewer: Louise.Coderre@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Old Age Security (OAS) + Guaranteed Income Supplement (GIS) + PLAN NAME All members receive DB only.
Practice Canada/Quebec Pension Plan (CPP/QPP)
Typical Market Approximate: All full- and part-time employees, subject to a minimum service PLAN ELIGIBILITY All full- and part-time employees, subject to a minimum service
Practice requirement. For part-time employees, a minimum earnings level requirement. For part-time employees, a minimum earnings level
% of multinational
and local leading requirement applies. requirement applies.
companies with a 65 males/65 females. NORMAL RET. AGE 65 males/65 females.
supplementary plan
Typically up to 2% of final average earnings times years of service BENEFIT FORMULA Accumulation of contributions with interest.
80% (65% of DB plans). Alternatives are career average earnings (15%)
and flat benefit (20%) plans.

% 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)
ƒ Current legislative environment results in asymmetry with respect ƒ Employers are considering ways to improve retention features ƒ 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
ƒ 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 ƒ Interest in phased retirement programs. ƒ Newfoundland and Nova Scotia now require full funding of
rationalizing or harmonizing their own plans, face uncertainty ƒ 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.
ƒ Tax treatment of DC plans is more advantageous for younger
ƒ Potential inadequacy of DC benefits due to low-interest-rate ƒ 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.
ƒ 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

Canada Author: Martina.Franchi@mercer.com


Peer Reviewer: Brian.Lindenberg@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Provincial health care – ƒ Benefits Provided by Social Security: Canada Pension Plan ƒ Benefits Provided by Social Security: Canada Pension Plan (or
Coverage varies by province but all provinces provide for (CPP) provides limited long-term disability (LTD); short-term Quebec Pension Plan) – Death Benefit: A lump sum benefit of up
physician visits and hospitalization; limited prescription drug disability (STD) is provided by employment insurance (EI), which to CAD 2,500. Widows’ and Orphans’: Monthly benefit. Additional
coverage available (some provinces provide this only to seniors; pays 55% of insurable earnings from the third week of sickness monthly benefits are payable for each dependent child.
coverage is often income-tested). Some provinces provide basic for up to 15 weeks (weekly maximum of CAD 447 in 2009). ƒ Plan Eligibility: Subject to minimum contributory periods under
dental care for children receiving social assistance. ƒ Benefits Provided by Employer: Work-related disability – Vary by the Canada Pension Plan/Quebec Pension Plan.
ƒ Plan Eligibility: Typically three months of permanent residence. province, but range from 75% to 90% of salary. Additional ƒ Plan Financing: Employer and employee premiums.
ƒ Plan Financing: General provincial government revenues, benefits are not mandatory. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
including federal transfer payments and income taxes. Some ƒ Plan Eligibility: EI and CPP eligibility is based on meeting Needs? Inadequate.
provinces charge a premium; some impose an employer payroll contributory period requirements; work-related disability coverage
tax. requirements vary by province.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ Plan Financing: Employer and employee premiums.
Needs? Provincial plans are intended to cover only basic, ƒ How Adequate Are Mandatory Benefits in Meeting Employee
medically necessary expenses. Needs? Inadequate for non-work-related absences.
Typical Typical Typical
ƒ Plans: Extended health and dental coverage. ƒ Plans: Long-term disability (LTD) and short-term disability (STD). ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: Close to 100% of multinational and local leading ƒ Prevalence: LTD and STD provided by close to 100% of ƒ Prevalence: Death and AD&D provided by close to 100% of
companies. multinational and local leading companies. multinational and local leading companies.
ƒ Plan Eligibility: All permanent full-time employees after zero to ƒ Plan Eligibility: LTD and STD provided to all permanent full-time ƒ Plan Eligibility: All permanent, full-time employees after zero to
three months of employment. Typically separate plans for union employees after zero to three months of employment. three months of employment.
and nonunion employees; a limited number of employers offer a ƒ Benefit Description: LTD – Monthly benefit of 60% to 70% of ƒ Benefit Description: Death – Natural causes: one to three times
separate plan for executives. earnings for salaried employees (50% – 60% for hourly annual salary; AD&D – Equal to the death benefit.
ƒ Dependent Coverage: Yes. employees) until age 65; monthly maximum of CAD 3,000 to ƒ Employee Contributions: None in about 80% of plans (note that
ƒ Benefit Description: Prescription drugs, paramedical CAD 10,000 typically applies. STD – 60% to 100% of salary for some employers provide optional life and/or AD&D and this is
practitioners, vision care, private or semiprivate hospital, three to six months for salaried employees (55% to 70% for up to 100% employee paid).
ambulance, dental, out-of-country emergency medical. six months for hourly employees). ƒ Plan Financing: Insurance policy.
ƒ Employee Contributions: 70% of plans 100% employer funded. ƒ Employee Contributions: STD – None. LTD – About 40% of plans ƒ Is Coverage Part of Another Plan? No.
ƒ Plan Financing: Insured or self-insured. are 100% employee paid.
ƒ Is Coverage Part of Another Plan? No (vision typically part of ƒ Plan Financing: STD – Insured or self-insured; LTD – Insured.
extended health). ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate (2008): 8% to 10%. ƒ The role of benefits in attraction and retention of employees as a ƒ The act respecting prescription drug insurance in Quebec
ƒ Downturn in global economy is impacting Canadian employers. part of a total rewards proposition is increasing. substantially impacts employers that offer group insurance plans
ƒ Provincial governments continue to be constrained financially to ƒ Employers are being more creative about introducing additional covering Quebec employees, from both an administrative and a
support rising health care costs; this results in continued flexibility into benefit plans. plan documentation management perspective.
reduction of coverage, which in turn increases the demand for ƒ The opportunity is increasing for more sophisticated cost ƒ The impact of Ontario Bill 102 prescription drug pricing in Ontario
company-sponsored health care programs. management. in terms of increasing costs for company-sponsored plans
ƒ Some employers continue to provide certain benefits to retirees ƒ Employers are increasingly interested in health and productivity remains to be seen; similar pricing is being implemented in
but are considering changes to ensure financial sustainability. (wellness) programs. British Columbia under the PharmaCare (provincial) program.
ƒ There is a rising prevalence of health spending accounts. ƒ Legal decisions relating to benefits are resulting in an increasing ƒ The Manitoba Employment Standards Act was amended to
focus on good corporate governance. reflect family leaves of absence and revised employer notice
ƒ Consolidated insurance industry has resulted in a seller’s market
periods in the event of nonculpable terminations and overtime.
with decreased flexibility and overall customer service.

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

Chile Author: Luis.Higuera@mercer.com


Peer Reviewer: Paola.Rubio@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies All members receive DC only. PLAN NAME Privatized social security locally known as APV (Ahorro Previsional
Practice Voluntario) – an individual (retirement) capitalization system
managed by for-profit entities called Administradoras de Fondos de
Pensiones (AFPs).
Typical Market Approximate: Not prevalent. PLAN ELIGIBILITY Not prevalent.
Practice % of multinational NORMAL RET. AGE 65 males/60 females.
and local leading
BENEFIT FORMULA Accumulation of contributions with interest.
companies with a
supplementary plan DEATH & DISABILITY None.
12% VESTING Immediate vesting.
EMPLOYEE Voluntary contributions – typically up to 3% of salary.
% of supplementary CONTRIBUTION
plans EMPLOYER Employer typically matches 100% of the employee contribution.
DB: 14% CONTRIBUTION
DC: 86%
FINANCING By way of an agreement (“depositos convenidos”) between
Hybrid: 0% employee and employer, additional contributions can be made by the
employee and employer to the individual employee’s capitalization
account.
Executive-only
plans FORM OF PAYMENT Annuity or lump sum.
Not prevalent HYBRID ALTERNATIVES Some of the plans include a minimum benefit.
OTHER Employee investment choice: No.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ After consolidation in the AFPs market sector, to date there are ƒ Social security does not provide an adequate retirement benefit ƒ Effective October 1, 2008, a new model for pension plans in
about six or seven AFPs in the mandatory system. Fierce for employees earning monthly 60 UFs or more. Chile was approved – APVC, or Ahorro Previsional Voluntario
competition for retaining current members and attracting new ƒ Some employers have started to make voluntary contributions to Colectivo, which is similar to a US 401(k) model. Based on an
members (offering higher and higher levels of return, lower employer tax-incentive program, the basic rules are as follows:
APV (mandatory system), usually for top management or key
commissions, etc.) as well as high turnover in the system and employees only. matching employer and employee contributions; minimum
total portability of the individual accounts may affect the long- adhesion required will be the lesser value between 30% of total
term sustainability of the system. ƒ 60 UFs = roughly USD 2,370 (UF = Unidad de Fomento, the employees and 300 people; maximum vesting period of 24
monetary unit indexed daily to inflation by the Chilean months; authorized entities for administration include banks,
government). mutual funds, pension funds, insurance companies and others;
ƒ Because of the pension reform effective on October 1, 2008, nondiscrimination is mandatory for the plans.
interest in the implementation of the APVC (401k) model is rising. ƒ These plans are complementary with the voluntary saving
ƒ Because APVC rules are not flexible (matching, vesting, system, but share the same limit (60 UFs).
universality, etc.), some companies are designing other pension
plan models that take advantage of the tax exception for
employees without following those rigid rules. These individual
plans are managed in a manner characteristic of group plans.

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

Chile Author: Paola.Rubio@mercer.com


Peer Reviewer: Luis.Higuera@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: FONASA (government ƒ Benefits Provided by Social Security (through FONASA and ƒ Benefits Provided by Social Security (AFP system): Death –
system)/ISAPRE (private system, regulated by the government): ISAPRE): LTD is provided by pension system (AFP); benefits are natural causes, death – accidental causes, dismemberment,
Employees may freely choose between FONASA and ISAPRE. 50% to 70% of earnings for total disability and 35% to 50% for disablement – natural causes, disablement – accidental causes.
Benefits provided by both include outpatient, hospitalization, partial disability. STD equals 100% of earnings for public
ƒ Benefits Provided by Employer: Workers’ compensation for work-
ambulance and vision. employees and average three-month earnings for private-sector related accident, disease or death.
ƒ Plan Eligibility: All employees and dependents. employees, paid until off disability or qualifying for LTD.
ƒ Plan Eligibility: All employees.
ƒ Plan Financing: Employee’s monthly contribution of 7% of ƒ Benefits Provided by Employer: Work-related disability –
compensation depends on degree of disability. ƒ Plan Financing: AFP – Contribution paid by the employer (2.23%
taxable salary, up to a limit. The ISAPRE system allows
to 2.50% of monthly salary) for companies with more than 100
additional contribution for improved benefit coverage. ƒ Plan Eligibility: All employees.
employees, since July 1, 2009. Workers’ compensation –
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ Plan Financing: FONASA or ISAPRE – Contribution paid by the Contribution is made by the employer (0.95% to 3.40% of total
Needs? Inadequate, as both systems do not include dental or employer for companies with more than 100 employees, since payroll, depending on industry).
prescription drugs (except in rare circumstances), and both July 1, 2009. Work-related disability – Employer assumes cost of ƒ How Adequate Are Mandatory Benefits in Meeting Employee
reimburse just 65% of cost on average. workers’ compensation company (mutual).
Needs? Although mandatory benefits are not considered
ƒ How Adequate Are Mandatory Benefits in Meeting Employee inadequate, most companies provide additional life insurance to
Needs? STD – Not adequate for high earners, as earnings are their employees.
capped at about USD 2,170 monthly.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD) and short-term disability ƒ Plans: Life and accidental death & dismemberment (AD&D).
ƒ Prevalence: 90% of multinational and local leading companies. (STD). ƒ Prevalence: Life for 92% and AD&D for 92% of multinational and
ƒ Prevalence: TPD for 92% and STD for more than 90% of local leading companies.
ƒ Plan Eligibility: All employees and dependents.
multinational and local leading companies. ƒ Plan Eligibility: All employees.
ƒ Benefit Description: Outpatient services, hospitalization,
ƒ Plan Eligibility: All employees. Benefit Description: Life – Between 24 and 36 times monthly
ambulance services, dental, vision, maternity and prescription ƒ
drugs. The benefit is provided on an indemnity basis. ƒ Benefit Description: TPD – Lump sum equal to the life insurance salary for executives and between 12 and 24 times monthly
benefit. STD – Social security pays sick leave up to certain limits. salary for managerial-level employees and below. AD&D –
ƒ Employee Contributions: 15% – 30% of premium, with no
distinction between employee and dependent costs. Companies typically supplement social security benefit up to Double indemnity of death benefit.
100% of pre-disability salary. ƒ Employee Contributions: None.
ƒ Plan Financing: Insurance policy.
ƒ Employee Contributions: None.
ƒ Plan Financing: Insurance policy.
ƒ Is Coverage Part of Another Plan? No.
ƒ Plan Financing: TPD – Insurance policy. STD – No advance
ƒ Is Coverage Part of Another Plan? Life – No. AD&D – Yes, as a
financing; paid when required from company assets.
rider to a life insurance policy.
ƒ Is Coverage Part of Another Plan? TPD – Yes, as a rider to a life
insurance policy; STD – No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Reform to health social security increased the number of ƒ Like HMOs, ISAPRE restricts care for major illnesses to specific ƒ Effective July 1, 2009, the premium for mandatory disability and
illnesses that FONASA and ISAPRE are required to cover (at clinics and hospitals, impairing the level of member choice. death coverage is paid by the employer for companies with more
minimum coverage). This has resulted in a premium increase for ƒ GES is a special program that guarantees access, quality and than 100 employees. Companies with less than 100 employees
employees covered by ISAPRE. Currently 56 illnesses are will remain as usual until July 2011.
care for individuals suffering from one of 56 illnesses specified by
covered (with ISAPRE premium fixed until June 2010). law. In June 2010, new illnesses will be added to this program.

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

Colombia Author: David.Cuervo@mercer.com


Peer Reviewer: Gustavo.SosaRostan@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Public system (solidarity fund) mainly managed by the Institute of PLAN NAME Individual capitalization system managed by AFPs (private pension
Practice Social Security (ISS). In ISS system, normal retirement age is 60 funds administrators). Employees can choose between the public
males/55 females (as of 2014, new ages will be 62 males/57 and private systems, or can switch between them if it is more than
females). A severance annual payment program (“Cesantia”) is also 10 years until their normal retirement age. NRA is related to
in force. Current contributions to both systems are 16%. In both DB accumulated balance of the individual account and is subject to a
and DC plans, employee contribution is 4%. minimum pension entitlement. Current contributions to both systems
are 16%. In both DB and DC plans, employee contribution is 4%.
Typical Market Approximate: Not prevalent. Most existing DB plans have been negotiated with PLAN ELIGIBILITY Local executives, higher earners and key staff.
Practice % of multinational trade unions and converted into DC plans. Remaining DB plans will
be closed by 2010 (even in public sector) except for military forces.
and local leading
companies with a NORMAL RET. AGE In line with the DB mandatory retirement age (60/55).
supplementary
BENEFIT FORMULA Accumulation of contributions with interest.
plan
13% (e.g., large, DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
private oil/energy VESTING Vesting of supplementary retirement plan: This is established by the
and manufacturing internal rules of the company. Market practice shows a period of
companies, banks) vesting between three and 10 years, with different percentage per
year. DC mandatory system: Vesting can occur when accumulated
balance is enough to pay a minimum pension entitlement equal to
% of 110% of minimum wage.
supplementary
plans EMPLOYEE CONTRIBUTION Between 8% and 10%. Contributions are tax deductible. Maximum
tax deduction is 30% of monthly salary (includes mandatory and
DB: 1% voluntary employee contributions to savings and pension plans).
DC: 99% EMPLOYER CONTRIBUTION Between 8% and 10%. Employer matches employee’s contribution.
Hybrid: 0% Contributions are tax deductible.
FINANCING Financed through AFP, insurance company or trust.
Executive-only FORM OF PAYMENT Lump sum. .
plans
HYBRID ALTERNATIVES Not prevalent.
Not prevalent (some
Valuations: Annually. Local accounting standard: Colombian OTHER Commonly, the company may choose how to invest its
plans exist for
GAAP/IAS with specific rules depending upon employer’s industry contributions. Administrators offer different investment portfolio
management only or
(including level of assumptions). options. Depending on the size of the retirement plan portfolio, the
higher earners)
company can ask the administrator for specific portfolios.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ A vast majority of government-owned companies provide a ƒ Emerging presence of voluntary employer contributions to AFPs, ƒ A constitutional amendment has established a transitional period
retirement benefit and postretirement medical (usually especially for executives and key staff. Some big companies are that ends in 2010. During this period, negotiations of existing DB
unfunded) benefits, which may be an issue at the time of any starting to offer DC retirement plans as an attraction and retention plans must take place. From 2010, no additional DB plans
merger or acquisition, particularly for employees hired before strategy. Contribution to DC retirement plans or savings plans is should exist.
1994 and not covered by 1993 General Pension Law. usually an attractive tax benefit for the employee.
ƒ Companies are starting to purchase pension annuities in order to
transfer DBs to insurance companies (“conmutación pensional”).

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

Colombia Author: Margarita.M.Lopez@mercer.com


Peer Reviewer: Mauricio.Rubio@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Plan Obligatorio de Salud ƒ Benefits Provided by Social Security: Long-term disability, short- ƒ Benefits Provided by Social Security: Pension plans cover death
(POS, a mandatory health plan) – Emergency, outpatient term disability, permanent disability or pension plans, accidental by any cause (natural or accidental) after 50 weeks of
services, hospitalization, ambulatory treatments, surgical work-related dismemberment. contributing to the system.
services, basic dental care, vision (only basic optometry and
ƒ Benefits Provided by Employer: Through mandatory payments of ƒ Benefits Provided by Employer: Death if work-related.
ophthalmology consultation, including basic lenses every two social security (pension, POS and workers’ compensation).
years and surgery, as long as it is not for esthetic reasons), ƒ Plan Eligibility: All employees.
generic drugs. ƒ Plan Eligibility: All employees.
ƒ Plan Financing: Contributions to social security (workers’
ƒ Plan Eligibility: All employees and their dependents; independent ƒ Plan Financing: Contributions to social security (workers’ compensation – 100% paid by employer).
workers and their dependents. compensation is 100% paid by employer). ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Financing: Contributions to social security. ƒ How Adequate Are Mandatory Benefits in Meeting Employee Needs? Inadequate under pension plan. Fairly adequate under
Needs? Inadequate under pension plan. Fairly adequate under workers’ compensation plan.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
workers’ compensation plan.
Needs? Mandatory coverage (POS) is wide; however, access to
the best clinics and hospitals, private rooms, and some
specialists is limited.
Typical Typical Typical
ƒ Plans: Medical or prepaid medicine. ƒ Plans: Total permanent disability (TPD). ƒ Plans: Death and accidental death & dismemberment (AD&D) –
one policy.
ƒ Prevalence: 85% of multinational and local leading companies. ƒ Prevalence: 95% of multinational companies and 60% of local
companies. ƒ Prevalence: 95% of multinational companies and 60% of local
ƒ Plan Eligibility: All employees in 94% of companies; spouse and
children in 94% of companies; parents for single employees in ƒ Plan Eligibility: All employees. companies.
73% of companies. ƒ Plan Eligibility: All employees.
ƒ Benefit Description: TPD – Dismemberment by any cause;
ƒ Dependent Coverage: Yes. depending on degree of disability, a lump sum of between 12 and ƒ Benefit Description: Death (natural causes) – 12 to 24 times
ƒ Benefit Description: Emergency, outpatient services (including 24 times monthly salary is paid. monthly salary or a fixed lump-sum amount (insured maximum
depends on the plan). Death (accidental causes) and permanent
therapies and direct specialist consultation), hospitalization ƒ Employee Contributions: None.
(single room), ambulatory treatments, surgical services, disability and dismemberment – Benefit equal to double the
ƒ Plan Financing: Insurance policy. natural death benefit.
ambulance.
ƒ Is Coverage Part of Another Plan? Yes, as a rider to life ƒ Employee Contribution: None.
ƒ Employee Contributions: On average, 25% or premium.
insurance policy.
ƒ Plan Financing: Insurance policy or prepaid medicine. ƒ Plan Financing: Insurance policy.

ƒ Is Coverage Part of Another Plan? No. ƒ Is Coverage Part of Another Plan? No.

MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT


Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ High cost of health plans has become a clear threat. The ƒ Trend is for companies to integrate contribution made to social
increase in medical inflation was 6.5% from 2006 to 2007 and security with supplementary plans in order to reduce
5.3% from 2007 to 2008. supplementary medical benefit costs.

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

Mexico Author: Enrique.Marin@mercer.com


Peer Reviewer: Paule.Desaulniers@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Instituto Mexicano de Seguridad Social (IMSS) (old scheme is DB) + PLAN NAME IMSS (new scheme is DC) + mandatory termination indemnity (can
Practice mandatory termination indemnity (can be DB or DC). be DB or DC).
Typical Market Approximate: All nonunion employees upon date of hire. For nonunion employees, PLAN ELIGIBILITY All nonunion employees upon date of hire. For nonunion employees,
Practice % of multinational plans (can be DB or DC) are designed to cover statutory severance plans (can be DB or DC) are designed to cover statutory severance
and local leading indemnity at retirement plus additional benefits for earnings above indemnity at retirement plus additional benefits for earnings above
companies with a the social security salary ceiling. the social security salary ceiling.
supplementary plan 60 or 65 males/60 or 65 females. NORMAL RET. AGE 60 or 65 males/60 or 65 females.
70% 0.7% to 1.0% of final earnings per year of service (replaces BENEFIT FORMULA Accumulation of contributions with interest.
mandatory termination indemnity). Plus additional 0.7% to 1.0% of
% of supplementary salary over social security ceiling.
plans Included in retirement plan: Death – No. Disability – No. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
DB: 66% Vesting benefit: Vested at normal or early retirement ages. VESTING Vesting of employer contributions: Partial vesting after one year of
DC: 12% service and 100% vested after 10 to 15 years of service.
Hybrid: 22% Not required. None. EMPLOYEE Required to contribute 1% to 10% of base pay.
CONTRIBUTION

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)
ƒ Plan assets must be 100% invested in Mexican registered ƒ 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
ƒ 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
ƒ 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

Mexico Author: Salvador.Nieto@mercer.com


Peer Reviewer: Paule.Desaulniers@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Hospitalization, ambulance ƒ Benefits Provided by Social Security: Short-term disability, total ƒ Benefits Provided by Social Security: Death – natural and
services, dental, vision, doctor and specialist visits. permanent disability – lump sum; Long-term disability – income accidental causes, dismemberment, work-related benefits. For
ƒ Plan Eligibility: Union and nonunion employees. continuation, work-related benefits. death, a survivor's pension is paid to a widow, a dependent or a
disabled widower, as well as a lump-sum benefit and a funeral
ƒ Plan Financing: Contributions to social security. ƒ Plan Eligibility: Union and nonunion employees.
grant.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ Plan Financing: Contributions to social security.
ƒ Plan Eligibility: Union and nonunion employees.
Needs? Inadequate. The mandatory benefits are limited and ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Financing: Contributions to social security.
insufficient to cover employee needs; the service provided by Needs? Inadequate; these only cover minimum amounts.
social security is insufficient; and there is a lack of resources and ƒ How Adequate Are Mandatory Benefits in Meeting Employee
long waiting lines for non-emergency care. Needs? Inadequate.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD); short-term disability ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: 100% of multinational and local leading companies (STD). ƒ Prevalence: 100% of multinational and local leading companies.
provide major medical, and only 10% provide minor medical. ƒ Prevalence: TPD – 100% of multinational and local leading
ƒ Plan Eligibility: Union and nonunion employees.
ƒ Plan Eligibility: All nonunion employees – One plan covering companies. STD – 50% to 70% of companies.
ƒ Benefit Description: Death – Lump sum of 24 to 36 (average 30)
executives and nonunion employees. Generally, little medical ƒ Plan Eligibility: Union and nonunion employees.
times monthly salary payable upon death in service. By law, a
coverage is provided to union employees.
ƒ Benefit Description: TPD – Lump-sum benefit is generally company must also pay the employee's legal beneficiaries the
ƒ Dependent Coverage: Yes. provided under the group life insurance policy. By law, a seniority seniority premium (12 days of salary, up to two times minimum
ƒ Benefit Description: Outpatient services, hospitalization, premium is payable if an employee is disabled on a permanent wage, per year of service), paid as a lump sum. AD&D: Double
basis. STD – Commonly, employers pay salary at 100% rate for the life insurance benefit.
ambulance services, dental, vision. The level of coverage varies
the first three days not covered by social security. After the third
by company. There are usually major medical policies and minor ƒ Employee Contributions: None.
medical policies. day, most employers will supplement salary up to 100%, with a
maximum of 25 times monthly minimum wage for a maximum of ƒ Plan Financing: Insurance policy.
ƒ Employee Contributions: Some companies have an employee 52 weeks, in particular for non-union workers. ƒ Is Coverage Part of Another Plan? Death – Sometimes part of
contribution, which can vary from 50% of cost or 100% of the pension plan; life insurance policy is more common. AD&D –
ƒ Employee Contributions: None.
dependent cost.
Yes, as a rider to life insurance policy.
ƒ Plan Financing: TPD – Insurance policy. STD – Self-funded.
ƒ Plan Financing: Insurance policy for major medical; self-funded
or insurance policy for minor medical. ƒ Is Coverage Part of Another Plan? TPD – Yes, as a rider to life
ƒ Is Coverage Part of Another Plan? No. insurance policy or as part of the pension plan. STD – No.

MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT


Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate (2008): 12% to 14%. ƒ Emphasis on preventive care.
ƒ Limited budgets of companies for provision of health coverage. ƒ Increased interest in minor medical plans.

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

USA Author: Steve.Alpert@mercer.com


Peer Reviewer: Scott.Tucker@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Social Security. PLAN NAME All members receive DB only.
Practice
Typical Market Approximate: The following describes a typical tax-qualified plan. All employees PLAN ELIGIBILITY The following describes a typical tax-qualified plan. All employees
Practice % of multinational age 18 and over are eligible after one year of service. are eligible upon date of hire.
and local leading 65 males/65 females. NORMAL RET. AGE 65 males/65 females (account balance may be withdrawn earlier,
companies with a upon termination with possible penalties, or at age 59½).
supplementary plan Percentage of average pay in final three to five years for each year BENEFIT FORMULA Accumulation of contributions with investment earnings.
95% of service. Some more recent designs use total career pay.
Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – No. Disability – No. (Other than
% of supplementary full account balance is available to beneficiary.)
plans Vesting benefit: Full vesting after five years of service. VESTING Vesting of employer contributions: Full vesting after three years of
DB: 30% service or gradual vesting over a six-year period.
DC: 60% Very few plans require contributions. EMPLOYEE Not required. Voluntary pretax salary deferrals permitted.
Hybrid: 10% (hybrid CONTRIBUTION
is a sub-category of Full cost of plan. EMPLOYER Employer usually matches employee contributions up to a limit. Flat
a DB plan) CONTRIBUTION percentage of pay contribution is common.
About 70% of large Larger plans use an institutional trustee, usually a bank. Some FINANCING Investment management company.
employers offer both smaller plans use insurance companies.
DB and DC plans for Annuity; lump-sum options sometimes available. FORM OF PAYMENT Lump sum.
active employees
DB plans with DC-like features are gaining in popularity, for example, HYBRID ALTERNATIVES DC plan offering DB forms of payment. For example, employee has
cash balance and retirement shares plans. A cash balance plan is an annuity payment options (life annuity or joint and survivor annuity)
Executive-only account-based formula with a lump-sum option and full vesting after and receives a series of fixed payments over a period of years.
plans: Common three years of service.
Valuations: Annually. Local accounting standard: FAS 87. OTHER Employee investment choice: Yes.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Government regulation of pension plans and litigation ƒ Typically active employees of large companies participate in ƒ Generally effective January 1, 2009, new rules governing 403(b) plans –
opposing hybrid plans both threaten long-term viability of both a DB plan and a DC plan. Trend is moving toward offering which are similar to 401(k) plans but for public schools, universities and
DB plans. Recent legislation has eased but not removed only a DC plan to new hires and a DB plan for existing certain nonprofit employers such as hospitals – are intended to give
the litigation threat. employees, but this is not typical practice yet. employers more oversight over employees’ investments, but create many
ƒ Significantly underfunded plans have seen a large ƒ Trend toward greater employee cost sharing of retirement administrative requirements necessary to bring the plans into compliance.
increase in minimum funding requirements as well as benefits continues with the popularity of 401(k) plans. ƒ Rules governing the timing and election of payments within nonqualified
accounting charges that have a significant impact on ƒ The majority of DC plans are 401(k) plans, but other plan types deferred compensation programs (including executive retirement plans,
organizations’ financial health. Some organizations are include (in order of prevalence): tax-sheltered annuities, or incentive and equity awards, and severance arrangements) have been
considering limiting participation in their DB plans to 403(b) plans, for educational and not-for-profit organizations; revised. Originally set to take effect January 1, 2008, transition rules have
existing employees. deferred compensation plans (457 plans) for public-sector generally been extended to December 31, 2008.
employers; profit sharing plans; discount stock purchase plans; ƒ Sweeping pension reform legislation, known as the Pension Protection Act
and employee stock ownership plans. (PPA) of 2006, was approved in August 2006. The new law requires
ƒ Mark-to-market funding and accounting rules have increased organizations to fully fund their pension liabilities over seven years,
interest in topics such as total risk management, investment beginning in 2008. DC plan provisions in the PPA include better plan
allocation, and (for frozen plans) “end game” planning and member education. In response to the extremely poor market performance
strategies for eventual windup of the DB plan. in 2008, companies have been given temporary statutory and regulatory
relief for 2009 to ease the transition into the full requirements of PPA.

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

USA Authors: Susan.Goldenson@mercer.com ; Kelly.Traw@mercer.com


Peer Reviewers: Linda.Havlin@mercer.com ; Judy.Bauserman@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security – Medicare: Outpatient ƒ Benefits Provided by Employer: STD – No federal provision for ƒ Benefits Provided by Social Security: Survivors’ benefits (death –
services, hospitalization, ambulance services, prescription drugs. sickness benefits, but six jurisdictions (California, Hawaii, New natural causes, death – accidental causes, death of spouse).
ƒ Plan Eligibility: Medicare – Persons age 65 or over; individuals Jersey, New York, Rhode Island and Puerto Rico) mandate STD ƒ Plan Eligibility: All employees.
coverage for employees. Benefits range from a flat weekly
under age 65 who are receiving Social Security disability income ƒ Plan Financing: Contributions to Social Security.
benefits or railroad retirement disability payments for at least 24 amount to a percentage of average weekly earnings; benefits are
limited to a maximum level and are paid for a limited period. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
months; individuals with end-stage renal disease or amyotrophic
lateral sclerosis. ƒ Plan Eligibility: STD – All employees if applicable. Needs? Benefit provides baseline income but is lower for
survivors under age 65.
ƒ Plan Financing: Medicare – Contributions to Medicare. ƒ Plan Financing: Self-insured or fully insured.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Inadequate. Needs? Inadequate.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Long-term disability (LTD) and short-term disability (STD). ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: Close to 100% of multinational and local leading ƒ Prevalence: LTD for close to 100% and STD for close to 90% of ƒ Prevalence: Death for close to 90% and AD&D for more than
companies. all large employers. 90% of large employers.
ƒ Plan Eligibility: Full-time salaried and hourly employees. ƒ Plan Eligibility: Full-time salaried and hourly employees. ƒ Plan Eligibility: Full-time salaried and hourly employees.
ƒ Dependent Coverage: Yes. ƒ Benefit Description: LTD – Income continuation on the level of ƒ Benefit Description: Death from natural causes or death of
40.00% to 66.66% of income protection inclusive of Social spouse typically pay one times the annual salary. AD&D benefits
ƒ Benefit Description: Outpatient services, hospitalization, surgical
benefit, laboratory fees and X-rays, prescription drugs, dental, Security payments. STD – 50% to 100% of income protection for for death from accidental causes, dismemberment or
up to six months. disablement.
vision, and preventive and acute care services.
ƒ Employee Contributions: Typically 20% of the premium for ƒ Employee Contributions: None. ƒ Employee Contributions: None.
employee coverage and 30% for dependent coverage. ƒ Plan Financing: Fully insured. Many large employers fund these ƒ Plan Financing: Insurance policy.
benefits through self-funded arrangements.
ƒ Plan Financing: Fully insured – many large employers fund these ƒ Is Coverage Part of Another Plan? Life – No. AD&D – Yes, as a
benefits through self-funded arrangements. ƒ Is Coverage Part of Another Plan? LTD – No. STD – No. rider to life insurance policy.
ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Rate of health care cost increases continue to outpace inflation. ƒ Employers and other health care stakeholders are considering ƒ President Obama and congressional leaders are debating
Frustration with current system’s inability to control price and the potential implications of US health system reforms as they significant reforms to address the US health care system.
improve quality of service. await the outcome of the current national health care reform ƒ A new temporary program provides a federal subsidy of 65% of
debate.
ƒ Rising number of individuals without health insurance coverage. premiums for certain people who continue their employer group
ƒ Focus is on health management and health promotion to improve health plan coverage that would otherwise end due to an
ƒ Increased demand for services.
employee health and control costs. involuntary employment termination.
ƒ Complicated health care delivery system.
ƒ Emphasis is on cost management and quality improvement ƒ States and localities are developing local solutions.
ƒ Retiree medical cost pressures. strategies to (i) increase transparency of health costs and data Massachusetts, Vermont and the City of San Francisco enacted
ƒ Increased government regulation. and (ii) select and reward providers based on performance laws requiring employers that do not provide adequate employee
measures. health coverage to help finance coverage for the uninsured.
Several other states are considering similar laws.

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

Venezuela Author: Carmen.C.Torres@mercer.com


Peer Reviewer: Martin.Rondeau@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Venezuelan Social Security Institute (IVSS). PLAN NAME Mandatory termination indemnity plan – DC based, paid due to any
Practice cause of withdrawal (including retirement).
Typical Market Approximate: Upon date of hire, all full-time employees and/or employees are PLAN ELIGIBILITY Not prevalent.
Practice covered under a collective bargaining agreement.
% of multinational
and local leading 60 males/55 females. NORMAL RET. AGE
companies with a
Benefit equals 2% of final two-year average salary per year of BENEFIT FORMULA
supplementary plan
service, subject to a minimum of 10 to 15 years of service. It is rare
5% formal plans (for for plans to offset social security pensions. Social security benefits
example, large, are generally considered too low to merit integration.
private oil/energy
companies) Included in retirement plan: Death – Usually yes. Disability – Usually DEATH & DISABILITY
yes (mostly for occupational accidents or work-related illnesses).
Vesting benefit: No benefit in most cases until normal retirement VESTING
% supplementary age.
plans
Not required. None. EMPLOYEE
DB: 80% CONTRIBUTION
DC: 20% Full cost of plan. EMPLOYER
Hybrid: 0% CONTRIBUTION
Self-administered trust fund or partially funded/unfunded book FINANCING
reserve common.
Executive-only
plans Choice of annuity or lump sum. FORM OF PAYMENT
Not prevalent Not prevalent. HYBRID ALTERNATIVES
Valuations: Annually. OTHER
Local accounting standard: Venezuelan GAAP.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Currency exchange controls are in place and legislation was ƒ Pension supplementation or alternative sources of retirement ƒ The mandatory termination indemnity benefit formula will once
enacted February 5, 2003, regarding the inflow and outflow of income are becoming a more prevalent topic of discussion again become retroactive (last salary times years of service) as it
hard currency in Venezuela; this is creating barriers for offshore among HR officers and senior-level employees. was before 1997. The amendment of the labor law in order for
or hard currency-based programs. this to be in force is pending discussion at Venezuela’s National
Assembly.
ƒ Proposed pension legislation was discussed by Venezuela’s
National Assembly (Congress). In it, a multi-pillar system 100%
managed by the government was proposed. No decision has
been reached.

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

Venezuela Author: Carmen.C.Torres@mercer.com


Peer Reviewer: Martin.Rondeau@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Free medical care through ƒ Benefits Provided by Social Security: STD – Starting on the third ƒ Benefits Provided by Social Security: The survivors' pensions
authorized medical staff in government hospitals. Benefits day of sickness, social security pays 67% of the monthly wage paid to widows and orphans are based on the projected or actual
include outpatient services, hospitalization, ambulance services, for up to 52 weeks; benefit reduces to one-third of the monthly retirement pension, and the total amount paid depends on the
dental, vision and work-related benefits (plastic surgery not wage for the following 52 weeks. LTD – An individual may claim number of survivors: 40% of the reference pension for a sole
considered unless because of an accident). permanent disability benefits following 24 months of disability; survivor, plus 20% for each additional survivor, up to a maximum
ƒ Plan Eligibility: All private- and public-sector employees, including medical review will be required every five years. Benefit is a lump of 100% of the reference pension.
sum or a monthly pension and depends on assessed loss of
temporary employees and pensioners. ƒ Plan Eligibility: All private- and public-sector employees, including
earnings capacity. temporary employees.
ƒ Plan Financing: Contributions to social security.
ƒ Plan Eligibility: All private- and public-sector employees, including
ƒ Plan Financing: Contributions to social security.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee temporary employees.
Needs? Inadequate (shortage of beds, overcrowded and service ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Financing: Contributions to social security.
is slow). Needs? Inadequate, given the current cost of living.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Insufficient.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD) and short-term disability ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: 100% Basic Plan and 3% Surplus Plan in (STD). ƒ Prevalence: 92% of multinational and local leading companies.
multinational and local leading companies. ƒ Prevalence: TPD and STD – 100% of multinational and local ƒ Plan Eligibility: All employees.
leading companies.
ƒ Plan Eligibility: Typically two levels of coverage provided for all ƒ Benefit Description: Life and AD&D – Lump-sum payment;
employees. First level (Basic Plan) provides same level of ƒ Plan Eligibility: All employees.
typically a multiple of monthly salaries (with a prevalence of 33%)
coverage for both executives and nonexecutives. Second level ƒ Benefit Description: TPD – Employers typically provide a with 18 – 24 months being market practice. Flat amounts are
(Surplus Plan – major medical) provides higher coverage for
disability lump-sum benefit equal to the face amount of the life more prevalent (62% of plans), with VEF 15,000 being the
executives than for nonexecutives.
insurance policy. STD – Employers typically supplement social median amount. The remaining 5% of the market defines the
ƒ Dependent Coverage: Yes. security benefits in order to maintain full weekly income. This is death benefit as a mixture of the above. AD&D is typically
ƒ Benefit Description: Basic hospitalization, outpatient and major not a statutory requirement, although it is usually included in provided as a rider to the life insurance policy. The level of
collective labor agreements. coverage in both cases is commonly the same.
medical. Basic dental care is provided through the medical policy.
ƒ Employee Contributions: None for employee coverage, 20% cost ƒ Employee Contributions: None. ƒ Employee Contributions: None.
of coverage for dependents. ƒ Plan Financing: TPD – Insurance policy. STD – Financed from ƒ Plan Financing: Insurance policy.
company assets when required.
ƒ Plan Financing: Insurance policy. ƒ Is Coverage Part of Another Plan? Life – No. AD&D – No.
ƒ Is Coverage Part of Another Plan? TPD – Yes, as a rider to life
ƒ Is Coverage Part of Another Plan? No.
insurance policy; STD – No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Private health service providers are facing a huge struggle due to
expectations over price regulation on services, currency
exchange control regime and threats made by the government
about nationalizing industry. Insurance companies that provide
health insurance products are also facing price regulations.

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

Australia Author: Guy.Holley@mercer.com


Peer Reviewer: Russell.Mason@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Social security + mandatory superannuation guarantee (SG), which PLAN NAME Social security + mandatory superannuation guarantee (SG), which
Practice can be DB or DC. can be DB or DC.
Typical Market Approximate: In general, supplementary pension plans are provided mainly to PLAN ELIGIBILITY In general, supplementary pension plans are provided mainly to
Practice management and higher-paid groups. Most DB plans are closed to management and higher-paid groups upon date of hire.
% of multinational
and local leading new hires. Where open, eligibility begins upon date of hire.
companies that 65 males/65 females. NORMAL RET. AGE 65 males/65 females.
provide
Typically six to seven times the final three-year average salary after BENEFIT FORMULA Accumulation of contributions with interest.
supplementary
40 years’ service (inclusive of the mandatory SG). Lower benefit
benefits through
scales may apply to employees classified as "wage earners."
same mandatory
plan Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
10% Vesting benefit: Vesting periods are now less common (that is, most VESTING Vesting of employer contributions: Immediate full vesting.
plans immediately vest). Benefit formula may be more generous on
retirement after age 55.
% of
supplementary Typically 5% of salary (not counted toward the mandatory SG) from EMPLOYEE Not required; voluntary contributions possible.
plans either pretax or post-tax salary, with additional voluntary CONTRIBUTION
contributions possible.
DB: 10%
1% – 2% of earnings in addition to 9% mandatory contribution to SG. EMPLOYER 1% – 2% of earnings in addition to 9% mandatory contribution to SG.
DC: 90% CONTRIBUTION
Hybrid: 0% Stand-alone trust, master trust or industry fund. FINANCING Stand-alone trust, master trust or industry fund.
Lump sum. FORM OF PAYMENT Lump sum.
Executive-only
Not prevalent. HYBRID ALTERNATIVES Not prevalent.
plans
Valuations: Formally every three years; informal valuations OTHER Employee investment choice: Yes.
Not prevalent
conducted more frequently.
Choice of fund also applies from July 1, 2005.
Local accounting standard: AASB 119 (based on IAS 19).
PENSION ENVIRONMENT
General Comments Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Australia does not typically have supplementary plans in the ƒ Continuing trend toward master trusts and industry funds. Many ƒ The concessional contribution limit has been reduced to AUD
sense that there is a separate plan. Instead, about 10% of employers have decided to wind up their stand-alone trust 25,000 per annum (AUD 50,000 per annum for those over age
multinational and local leading companies provide supplementary because of increasing regulatory complexity and compliance 50), effective July 1, 2009.
benefits for higher-paid groups within the same (mandatory) costs.
superannuation plan as for other employees, but through ƒ Most companies have shifted away from defined benefits. ƒ The government has proposed to lift the eligibility age for the
different membership categories.
ƒ Mandated and voluntary choices. Flexible defined contribution social security age pension from 65 to 67 over the period to
ƒ Many senior executives are "packaged," and superannuation is 2023. A number of other changes are also proposed.
plans – flexible contributions, insurance and investment choice,
one component of that package. Senior executives can choose
choice of fund.
how much of that package is directed toward superannuation
(other than for the minimum 9% SG). Even where there is a
supplementary arrangement, it is not usually significantly higher
than the 9% SG.

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

Australia Author: Guy.Holley@mercer.com


Peer Reviewers: Russell.Mason@mercer.com ; Andrea.McDonnell@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Medicare – Hospitalization, ƒ Benefits Provided by Social Security: Disability pension benefits ƒ Benefits Provided by Social Security: Short-term assistance for
outpatient services. provided after two years of disability. widows.
ƒ Plan Eligibility: All citizens and permanent residents. ƒ Benefits Provided by Employer: Workers’ compensation for work- ƒ Benefits Provided by Employer: Workers’ compensation for work-
ƒ Plan Financing: Medicare tax levy and general revenue. related injuries and illnesses. related deaths.

ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ Plan Eligibility: All employees. ƒ 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. ƒ Plan Financing: Insurance policy.
Approximately 40% of the population has supplementary private ƒ Plan Eligibility: All employees.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
medical coverage. Needs? Provides a basic level of coverage only, particularly for ƒ Plan Financing: Insurance policy.
long-term disability. ƒ 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
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD), long-term disability ƒ Plans: Death benefits through retirement (superannuation) fund.
ƒ Prevalence: Less than 10% of multinational and local leading (LTD) and short-term disability (STD) as riders to retirement ƒ Prevalence: 99% of multinational and local leading companies.
(superannuation) fund.
companies. ƒ Plan Eligibility: All permanent employees. Casual employees will
ƒ Plan Eligibility: Varies by organization. Given the very low ƒ Prevalence: 95% of multinational and local leading companies.
often be covered.
prevalence, there is no typical situation. ƒ Plan Eligibility: All permanent employees. ƒ Benefits Provided: For all causes of death. DC plan: Account
ƒ Dependent Coverage: Yes. ƒ 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.
ƒ Benefit Description: Hospitalization, ambulance services, dental,
vision, and other ancillary benefits such as physiotherapy and Salary continuance at 75% of salary for two years. ƒ Employee Contributions: Depends on plan design. DC plan –
chiropractic. ƒ Employee Contributions: Where provided through retirement Employee bears the total cost by deduction from the account
ƒ 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.
ƒ Plan Financing: Insurance policy. ƒ Plan Financing: Typically provided through retirement plan. Some
long-term salary continuance policies may be provided through ƒ Plan Financing: Typically provided through retirement plan.
ƒ Is Coverage Part of Another Plan? No. an insurance policy held by the company. ƒ Is Coverage Part of Another Plan? Yes, the retirement plan.
ƒ 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)
ƒ Medical inflation rate (2008): 4.8%. ƒ From July 1, 2010, the 30% tax rebate on private medical
ƒ 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

China Author: Catherine.Ye@mercer.com


Peer Reviewer: Jessica.Chen@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Old-age pension insurance (DB and DC). PLAN NAME Old-age pension insurance (DB and DC).
Practice
Typical Market Approximate: All employees. Probation period (typically three months) may apply. PLAN ELIGIBILITY Supplementary retirement plan (SRP): One year of service
Practice Age and service requirements usually are not a plan feature. requirement (50% of plans).
% of leading
multinational Enterprise Annuity (EA): All employees, after probation period.
companies with a
60 males/55 females. NORMAL RET. AGE 60 males/55 females.
supplementary plan
One to two times monthly salary for each year of service. BENEFIT FORMULA Accumulation of contributions with interest.
39%
Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.

% 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)
ƒ Current EA legislation does not provide guidance on tax relief for ƒ The government issued legislation in May 2004 on a DC ƒ 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
ƒ 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. ƒ
December 31, 2009.
offering some kind of supplementary pension plan. In 2002, the
equivalent statistic was 20%. There is a strong preference by ƒ 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

China Author: Katherine.Ge@mercer.com


Peer Reviewer: Greta.Mikelonis@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory (vary by city) Mandatory (vary by city) Mandatory (vary by city)
ƒ Benefits Provided by Social Security: Outpatient, hospitalization, ƒ Benefits Provided by Social Security: Work-related injury benefit ƒ Benefits Provided by Social Security: Work-related injury
maternity (contribution based). (contribution based), maternity leave, short-term disability benefit (contribution-based).
ƒ Plan Eligibility: All employees with local permanent residence. (mandatory and self-insured by employer). ƒ Plan Eligibility: All employees with local permanent residence.
ƒ Plan Financing: Employer and employee contributions to social ƒ Plan Eligibility: All employees with local permanent residence. ƒ Plan Financing: Employer and employee contributions to
security. ƒ Plan Financing: Work-related injury benefit and maternity leave social security.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee benefit are paid by employer and employee contributions to social ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Inadequate. security; short-term disability is self-insured by employer. Needs? Inadequate.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Inadequate.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD). ƒ Plans: Life and accidental death & dismemberment (AD&D).
ƒ Prevalence: 90% of surveyed companies in first-tier cities. ƒ Prevalence: 30% of surveyed companies in first-tier cities. ƒ Prevalence: Life – 74% of surveyed companies in first-tier
ƒ Plan Eligibility: All active employees; foreign nationals are typically ƒ Plan Eligibility: All active employees. cities.
covered under a separate medical plan. ƒ Benefit Description: Lump sum equal to life insurance benefit. AD&D – 90% of surveyed companies in first-tier cities.
ƒ Dependent Coverage: Yes, typically dependent children only. ƒ Employee Contributions: Not required. ƒ Plan Eligibility: All active employees.
Prevalence is 55% in first-tier cities. ƒ Benefit Description: Life – CNY 200,000 if flat amount, or 36
ƒ Plan Financing: Insurance policy.
ƒ Benefit Description: Outpatient, hospitalization, maternity, critical times monthly salary if multiples of monthly salary. AD&D –
illness and medical checkup; foreign national plan typically ƒ Is Coverage Part of Another Plan? Yes, as a rider to the life Equal to life insurance benefit amount.
includes worldwide coverage. insurance policy.
ƒ Employee Contribution: Not required.
ƒ Employee Contribution: None. ƒ Plan Financing: Insurance policy.
ƒ Plan Financing: Insurance policy. ƒ Is Coverage Part of Another Plan? No.
ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate (2008): 1.3% for outpatient and 3.4% for ƒ Multinationals are paying more attention to benefits coverage to ƒ Health care reform guidelines have been announced, with
hospitalization. (Source: Ministry of Health 2008) ensure compliance with local laws and regulations, alignment with more details to be released later in 2009.
ƒ Accessibility, affordability and quality of care present significant corporate governance, competitiveness in the local market, and ƒ The goal is to provide all urban and rural citizens with safe,
problems to citizens across the country, especially to those most adequate protection against risk and long-term cost exposure. effective, convenient and affordable health services by 2020.
vulnerable. ƒ Employers are more concerned about long-term cost containment ƒ Health care reform will focus on four main areas: public
ƒ Unethical behaviors and inefficiencies are widespread in the health during the economic downturn. health, medical services, medical insurance and medicine
care system. ƒ Employers are focusing more on providing an integrated health supply.
ƒ Lack of portability either during employment or after termination of solution to their employees (for example, preventive care, health ƒ Between 2009 and 2011, CNY 850 billion (USD 124 billion)
employment is a significant concern for employees and employers diagnostics, health management, flu shot, critical illness and will be injected into the health care system by the government
alike. dental). to improve medical insurance, establish a drugs system,
ƒ Absence of income protection disability coverage for seriously ill ƒ Highly paid employees are interested in insuring their assets, develop community care, reform public hospitals and improve
employees presents employers with liability issues while exposing health and earning power against risks of death, illness, disability, public health services.
employees and their families to devastating financial impact. accidents and the eventuality of retirement.
ƒ Health-related risks due to aging, environment, stress, diet and ƒ Disability insurance is slowly gaining recognition by employers and
lifestyle factors exist and may exacerbate over time. providers, but it may take some time for products to be developed
and accepted as part of a regular group benefit program.

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

Hong Kong Author: Ming.Wong@mercer.com


Peer Reviewer: Kevin.Davey@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Mandatory termination indemnity (DB) payable on retirement, known PLAN NAME Mandatory Provident Fund (MPF).
Practice as a Long Service Payment.
Typical Market Approximate: Permanent full-time employees upon completion of probation period PLAN ELIGIBILITY The following describes MPF top-up plans, which include all
Practice % of multinational (one to three months of service). employees ages 18 to 65 after completion of 60 days of service.
and local leading 60 males/60 females. NORMAL RET. AGE 65 males/65 females.
companies with a
Multiple times scheme salary times service, with the multiple usually BENEFIT FORMULA Accumulation of contributions with interest.
supplementary plan
ranging from one to three for noncontributory schemes.
80%
Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
Withdrawal benefit is usually a proportion of the accrued retirement VESTING Mandatory employer contributions: Immediate full vesting.
% of supplementary benefit, depending on service. The full vesting period can vary
plans Voluntary employer contributions: Vary depending on employer's
substantially across schemes, from less than 10 years to 30 years. choice. 100% vesting after 10 years is typical.
DB: 3%
Noncontributory; if contributions are required, normally at 5% of EMPLOYEE Mandatory 5% contribution to MPF, with monthly earnings capped at
DC: 95% basic monthly salary. CONTRIBUTION HKD 20,000. Voluntary contributions possible, with amount specified
Hybrid: 2% by employer in scheme rules or flexible per employee choice.
Full cost of plan less any employee contributions. EMPLOYER Total contributions of 5% to 10% of basic monthly salary uncapped
Executive-only CONTRIBUTION (inclusive of 5% mandatory contribution with monthly salary capped at
plans HKD 20,000). Contribution rate may vary by service or employee
grade.
Not prevalent
Trust arrangements. Master trusts (multi-employer pooled FINANCING Trust arrangements, the majority of which are master trusts.
arrangements typically operated by insurance companies) are more
common among smaller employers.
Lump sum. FORM OF PAYMENT Lump sum.
The greater of accumulated contribution balances and a multiple of HYBRID ALTERNATIVES Not prevalent.
service times salary.
Valuations: Every three years if the scheme is solvent on a voluntary OTHER Employee investment choice: Yes (six to 10 choices are typical).
leaving, service benefit basis; otherwise annual valuations are
required. Local accounting standard: HKAS 19.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Mandatory Long Service Payments (severance benefits), which ƒ MPF was implemented in December 2000. A growing number of ƒ Definition of MPF Relevant Income, on which MPF contributions
are DB in nature, can be used to offset an employer-sponsored companies are starting to review service provider performance, in are based, now includes housing allowance and other housing
retirement benefit. This effectively creates a DB retirement benefit particular, investment performance and the level of fees. benefits (effective November 1, 2008).
underpinning in any employer-provided DC plan. ƒ There is increasing pressure for MPF service providers to reduce ƒ An amendment to the ordinance has been drafted to allow
their fees, largely due to public opinion and the comments of the members of MPF schemes to transfer their accrued mandatory
regulator (MPFA). account balance to a provider of their choice once a year. No
ƒ Retirement plan benefits are more favorably taxed than cash proposal yet to allow members to choose their own provider for
compensation. Given low tax relief on employee contributions, the employer account balance. It is proposed that the bill will not
the salary sacrifice scheme is being considered by some come into effect until at least 12 months after it has been finalized.
employers. ƒ Initial discussions regarding allowing members to withdraw their
ƒ Increased sophistication of DC investment choices and member mandatory benefits from the MPF before the statutory retirement
services. age (65) in more circumstances than currently 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. 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

Hong Kong Author: Irene.Chang@mercer.com


Peer Reviewer: Margie.Wong@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Inpatient, up to HKD 200 ƒ Benefits Provided by Social Security: HKD 1,280 – HKD 2,560 ƒ Benefits Provided by Social Security: Death – If deceased under
per day; outpatient, up to HKD 200 per day; both inpatient and per month for long-term disability (LTD). age 40: 84 months’ earnings (max. HKD 1,764,000 and min.
outpatient, up to HKD 280 per day. Under the new amendments ƒ Benefits Provided by Employer: For short-term disability (STD), HKD 303,000); age 40 to 56: 60 months’ earnings (max. HKD
effective on September 1, 2008, made to the Employees’ 1,260,000 and min. HKD 303,000); age 56 or above: 36 months’
two days of paid sick leave for each month of completed
Compensation Ordinance, medical treatment given by a employment during the first 12 months of employment (80% of earnings (max. HKD 756,000 and min. HKD 303,000). AD&D – A
registered Chinese medicine practitioner shall be payable to the benefit of two-thirds of final monthly pay (capped at HKD 22,500)
daily wages).
employee. for each year of service will be paid by the employer.
ƒ Plan Eligibility: LTD – All residents. STD – Employees under
ƒ Plan Eligibility: All full-time or part-time employees who are ƒ Plan Eligibility: All employees.
continuous contract.
employed under contracts of service. ƒ Plan Financing: Financed by the government.
ƒ Plan Financing: LTD – Employer is compulsorily required to pay
ƒ Plan Financing: Employer is compulsorily required to pay for the
for the EC Insurance; CSSA is subsidized by the government. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
EC Insurance. CSSA is subsidized by the government.
STD – Employer pay-as-you-go system. Needs? Cover only the minimum.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Cover only the minimum, with majority of employers
Needs? Cover only the minimum.
providing top-up insurance.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD), long-term disability ƒ Plans: Life and accidental death & dismemberment (AD&D).
(LTD).
ƒ Prevalence: 96% of employers provide basic hospitalization; 61% ƒ Prevalence: 76% of employers provide term life insurance; 49%
provide supplementary major medical; 93% outpatient clinical; ƒ Prevalence: 33% of employers provide TPD benefits, 5% provide provide AD&D benefit.
20% maternity; 51% dental; 24% annual medical checkup. disability income benefits. ƒ Plan Eligibility: Life and AD&D – All full-time permanent
ƒ Plan Eligibility: All full-time permanent employees. Benefit level ƒ Plan Eligibility: All full-time permanent employees. employees.
often varies based on job grade. ƒ Benefit Description: TPD – 24 to 36 times monthly salary, with ƒ Benefit Description: Life – Benefit ranges from 24 to 36 times
ƒ Dependent Coverage: Yes. managers/executives receiving the higher end. LTD – 60% of monthly salary (no cap), with managers/executives receiving the
salary after a 90-to-180-day waiting period, payable until age 60 higher end. AD&D – Benefit is doubled upon accidental death.
ƒ Benefit Description: Companies provide first-dollar coverage for
hospitalization, supplementary major medical, drugs, maternity, or 65. ƒ Employee Contributions: None.
and outpatient benefits. 50% of employers provide first-dollar ƒ Employee Contributions: None.
ƒ Plan Financing: Insurance policy (annual premium).
coverage for dental. Reimbursement amount for dental ranges ƒ Plan Financing: TPD and LTD – Insurance policy.
from HKD 2,100 to HKD 6,500 (maximum per year). ƒ Is Coverage Part of Another Plan? Life – No. AD&D – Yes, as a
ƒ Is Coverage Part of Another Plan? TPD – Yes, as a rider to life rider to the group life insurance.
ƒ Employee Contributions: None for employee or dependent
insurance policy. LTD – No.
coverage.
ƒ Plan Financing: Insurance policy.
ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate (2008): 5%. ƒ In the face of surging medical costs, employers are considering ƒ Because of economic downturn, the government has postponed
ƒ More chronic illnesses at younger age. alternatives for revamping their medical benefit arrangement, for the second phase of Health Care Reform Financial Consultation,
example: reconfigure the current cover, increase copay, cost scheduled for early 2009.
sharing, managed health care, wellness program, flexible
benefits and multinational pooling.

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

India Author: Dhwani.Shah@mercer.com


Peer Reviewer: Gautam.Kakar@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Gratuity scheme (compulsory for companies with 10 employees or PLAN NAME Employees' Provident Fund (EPF). Most employers do not follow the
Practice more). Some employers (typically multinationals) operate gratuity statutory wage limit eligibility conditions. Instead, they voluntarily
schemes that provide for amounts higher than the statutory extend EPF participation to all employees. Higher voluntary
minimum. contributions by employer and employee to EPF are possible –
+ mandatory termination indemnity although rarely paid by employers.
Typical Market Approximate: Superannuation scheme (can be DB or DC; mostly DC basis). PLAN ELIGIBILITY Superannuation scheme (can be DB or DC; mostly DC basis).
Practice % of multinational Management employees. Generally, no minimum service Management employees. Generally, no minimum service
and local leading requirement is prescribed for joining the scheme. requirement is prescribed for joining the scheme.
companies with a 58/60 years – no gender differentiation. NORMAL RET. AGE 58/60 years – no gender differentiation.
supplementary plan
Accrual rates of 1% to 3% of final pay, often with different rates for BENEFIT FORMULA Accumulation of contributions with interest.
50% different employee groups. The maximum pension is usually limited
to 70% to 80% of final salary.
% of Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Both death and disability for
supplementary accumulated amounts to the credit.
plans Vesting benefit: Often the benefits vest at age 50 except for death or VESTING Vesting of employer contributions: Practice varies. Full vesting under
DB: 35% disability. Private sector normally uses combination of age and past superannuation scheme ranges from zero to five years.
service requirement for vesting purposes.
DC: 65%
Hybrid: 0% Not mandatory. EMPLOYEE Not required. However, it is not uncommon for pension schemes to
CONTRIBUTION require employees to contribute at a fixed percentage, typically 5%.
95% of new plans
are DC Full cost of plan. EMPLOYER 15% of wages (base salary + dearness allowance). By law,
CONTRIBUTION maximum contribution is 27% minus the contribution to the EPF
(including mandatory and voluntary contributions to EPF).
Executive-only Accounting provision or insurance policy or self-managed fund. FINANCING Insurance policy or self-managed fund.
plans
Combination of annuity and lump sum. FORM OF PAYMENT Combination of annuity and lump sum.
Common
Not prevalent. HYBRID ALTERNATIVES Not prevalent.
Valuations: Can be annual , half-yearly or quarterly depending upon OTHER Employee investment choice: Not typical yet, but there is growing
the audit requirement of the corporation. Local accounting standard: interest from employers. Possible under a scheme with life
AS 15 (Revised). insurance company; not possible under a private fund.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Private pension funds in India can now invest up to 15% of ƒ Insurance companies have been offering DC investment options ƒ All foreign workers in India from countries with which India has
corpus in equities. The Ministry of Finance has recently in voluntary superannuation schemes since 2002. Some not signed a social security agreement (SSA), and all Indians
published a notification that provides more flexibility on the multinational companies are implementing the new possibilities working for an Indian company in a country with which India does
investment pattern of nongovernment provident funds, of investment options to existing plans. In case of a DC not have an SSA, must contribute 12% of applicable salary to the
superannuation schemes and gratuity funds, effective April 1, superannuation plan, companies have started giving investment Employees’ Provident Fund. There is no exemption for foreign
2009. choices to employees. In the case of a DB plan, the employer will workers earning more than INR 6,500 per month. Employer will
exercise the choice. have to make a 12% contribution for nonexcluded employees.
ƒ The Pension Fund Regulatory & Development Authority
launched the country’s first pension scheme for all citizens on
May 1, 2009. The new National Pension Scheme (NPS) offers
investment and provider choice. Employers can consider use of
NPS for supplemental retirement saving.
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. 34
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

India Author: Suresh.M@marsh.com


Peer Reviewer: Anchit.Kalra@marsh.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Employees’ State Insurance Corporation ƒ Benefits Provided by ESIC Scheme: Short-term disability benefit ƒ Death Benefits Provided Through EPF: Death due to natural and
(ESIC) Scheme: Outpatient services, hospitalization, ambulance (up to 91 days). Long-term disability benefit – Lump sum, funeral accidental causes.
services, maternity. expenses, vocational rehabilitation and allowance. ƒ Plan Eligibility: All employees who are part of the EPF. EPF is
ƒ Plan Eligibility: Employees earning less than INR 10,000 per ƒ Plan Eligibility: Employees earning less than INR 10,000 per mandatory for employees earning less than INR 6,500. However,
month. month. the prevalence of EPF is across all salary levels.
ƒ Plan Financing: Contributions to ESIC by employer, employee ƒ Plan Financing: Contributions to ESIC scheme by employer, ƒ Plan Financing: Contributions to EPF by employer.
and state government. employee and state government. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ How Adequate Are Mandatory Benefits in Meeting Employee Needs? Inadequate.
Needs? Benefits are not offered to all employees, and the quality Needs? Very limited and aimed only at employees earning less
of the hospitals in the network is not satisfactory. than INR 10,000 per month.

Typical Typical Typical


ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD), permanent partial ƒ Plans: Group personal accident (GPA) and group term life (GTL).
ƒ Prevalence: 100% of multinational and leading Indian companies disability (PPD), temporary total disability (TTD) due to accident. ƒ Prevalence: 49% of multinational and local leading companies
as per Marsh H&B Study 2008-2009. ƒ Prevalence: 91% of multinational and local leading companies as offer GTL as per Marsh H&B Study 2008-2009.
per Marsh H&B Study 2008-2009.
ƒ Plan Eligibility: Typically employees not covered under ESIC ƒ Plan Eligibility: All employees.
scheme are covered under this plan. ƒ Plan Eligibility: All employees.
ƒ Benefit Description: Life (GTL) – 24 to 60 times monthly salary
ƒ Dependent Coverage: Yes, typically extended to spouse and ƒ Benefit Description: TPD – Coverage is equivalent to the (median is 24 months); this covers death due to all causes, and
children, with 68% extending the coverage to dependent parents. principal sum insured under GPA. PPD – Coverage varies from some companies even seek suicide coverage from day one.
ƒ Benefit Description: Hospitalization, ambulance services, dental, 1% to 100% of the principal sum insured under GPA. TTD – AD&D (GPA): 24 to 60 times monthly salary (median is 36
Weekly benefit of INR 5,000 – INR 10,000; up to a maximum of months); typically provides a predetermined benefit in case of
vision, maternity.
100 weeks available. accidental death, permanent (total or partial) or temporary
ƒ Employee Contributions: None for employee. Trend toward disability.
ƒ Employee Contributions: None.
employee cost sharing for parental coverage. Coverage is
Plan Financing: Insurance policy. ƒ Employee Contributions: None.
provided on either a per-individual or a per-family basis, with ƒ
most companies choosing the latter (known as “family floater”). ƒ Is Coverage Part of Another Plan? Sickness as part of the group ƒ Plan Financing: Insurance policy.
ƒ Plan Financing: Insurance policy. medical plan; TPD/PPD/TTD as part of group personal accident ƒ Is Coverage Part of Another Plan? Life – No. AD&D – No.
(GPA) plan.
ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation is much higher than general inflation. For 2008 – ƒ Benefit plan design is becoming more complicated due to cost ƒ IRDA has set up a committee for “evaluation of the performance
2009 the inflation is estimated between 15% and 17%. containment measures and market competitiveness. of TPAs,” which will examine their role, suggest best practices,
ƒ No strict laws to regulate provider practices that result in high ƒ There is a growing interest in offering flexible benefits. and study data availability and coding systems.
degree of cost variation for similar treatments. ƒ Proposal to increase FDI participation in the insurance sector
ƒ Employers are likely to adopt wellness programs to control costs
ƒ Minimum standards of care and standard treatment protocols are from existing 26% to 49%.
over the long term.
not clearly defined.
ƒ Quality of medical data is not satisfactory; International
Classification of Diseases (ICD) is not followed by every provider.

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

Indonesia Author: Muhammad.Ismail@mercer.com


Peer Reviewer: Jovita.Suwarso@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Labor Law #13 (2003): Benefits are payable to all employees who PLAN NAME Jamsostek (compulsory for companies with more than 10 employees
Practice have been terminated from the company due to the attainment of or with a monthly payroll of at least IDR 1 million).
retirement age; also known as a mandatory termination indemnity
plan.
Typical Market Approximate: Employers’ Pension Fund (EPF; can be DB or DC): All employees, PLAN ELIGIBILITY EPF (can be DB or DC; often for larger schemes) and Financial
Practice % of multinational after three months of service. Institution Pension Fund (FIPF; small to medium-size companies): All
and local leading employees, after three months of service.
companies with a 55 males/55 females. NORMAL RET. AGE 55 males/55 females.
supplementary plan
Benefit factor times years of service times pensionable salary (last BENEFIT FORMULA Accumulation of contributions with interest.
73% wages). No typical benefit factor; however, the maximum benefit
factor is 2.5% for pension formula, 2.5 times for lump-sum formula.
% of supplementary Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – No. Disability – No.
plans Vesting benefit: Generally after three years in the plan, with a refund VESTING Vesting of employer contributions: FIPF – Immediate full vesting. EPF
DB: 45% of member’s contributions (with interest) being paid if employee – Full vesting after three years of plan membership.
DC: 49% withdraws before this time.
DB and DC: 6%* No requirement. Majority of plans are contributory. If a company EMPLOYEE EPF and FIPF: 2% of base salary.
implements a contributory plan, the maximum employee contribution CONTRIBUTION
Hybrid: 0% is 7.5% of pensionable salary.
* Usually the DC plan
The rate of contribution is determined based on an actuarial EMPLOYER EPF and FIPF: 6.4% of base salary.
is for new
valuation less employee contribution (if any). CONTRIBUTION
employees; those
who joined earlier All plans funded through a dana pensiun (pension fund) as an EPF, FINANCING By setting up FIPF – through a life insurance company or bank – or
have the DB plan which is a separate legal entity. EPF, which is a separate legal entity.

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)
ƒ Nowadays, DC plans, namely those secured through an FIPF, ƒ Employers are required to participate in a new compulsory
are more popular than DB plans. retirement scheme, the Employment Termination Compensation
ƒ 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.
ƒ 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

Indonesia Author: Muhammad.Ismail@mercer.com


Peer Reviewer: Jovita.Suwarso@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security (Jamsostek): Outpatient ƒ Benefits Provided by Social Security (Jamsostek): STD (in form ƒ Benefits Provided by Social Security (Jamsostek): Lump sum of
services, hospitalization, ambulance services, dental, vision, of sickness benefit) – Salary continuation graded from 100% to IDR 12 million (10 million death allowance + 2 million burial
family health care (immunization, family planning), maternity. 25% for maximum of 12 months. allowance) and annuity benefit (for two years) of IDR 200,000 per
month for non-work-related death. Lump sum of IDR 2 million
ƒ Plan Eligibility: Permanent employees. ƒ Plan Eligibility: Permanent employees.
plus 48 times monthly salary in case of work-related accident.
ƒ Plan Financing: Contributions to social security. ƒ Plan Financing: Work-related – Contributions to social security.
ƒ Plan Eligibility: Permanent employees.
Sickness benefit – Paid from company assets.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Financing: Contributions to social security.
Needs? Inadequate. The benefit level is limited to the second ƒ How Adequate Are Mandatory Benefits in Meeting Employee
class in government hospitals or third class in private hospitals. Needs? Moderately adequate. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Inadequate. The Jamsostek benefit is very low, about
seven times monthly nontaxable income.
Typical Typical Typical
ƒ Plans: Medical. Mostly private plans are provided to replace the ƒ Plans: Total permanent disability (TPD). ƒ Plans: Life and accidental death & dismemberment (AD&D).
mandatory social security plan. This is allowed when private ƒ Prevalence: 97% of multinational and local leading companies. ƒ Prevalence: Life for 71% and AD&D for 67% of multinational and
plans offer better benefits than the mandatory plan does.
ƒ Plan Eligibility: All employees who have passed the probation local leading companies.
ƒ Prevalence: Close to 100% of multinational and local leading
period. ƒ Plan Eligibility: All employees are eligible immediately after
companies. becoming a permanent employee.
ƒ Benefit Description: A sum insured equal to the death benefit is
ƒ Plan Eligibility: All employees who have passed the probation
paid in the event of total permanent disability. A percentage is ƒ Benefits Provided: Life – 24 times monthly base salary. AD&D –
period. Typically the plan is provided for five employee levels, for
paid for partial disability. 36 times monthly base salary.
example, top management, management, professional, staff and
direct labor. ƒ Employee Contributions: None. ƒ Employee Contributions: None.
ƒ Dependent Coverage: Employers provide employees with ƒ Plan Financing: Insurance policy. ƒ Plan Financing: Insurance policy.
dependent coverage for a maximum of four dependents. ƒ Is Coverage Part of Another Plan? Yes, as a rider to life ƒ Is Coverage Part of Another Plan? Life – No. AD&D – Yes, as a
ƒ Benefit Description: Covers outpatient services, hospitalization insurance policy. rider to life insurance policy.
and surgery, ambulance services, dental, vision, maternity.
Percentage of reimbursement is typically between 80% and
100%.
ƒ Employee Contributions: None for employee and dependent
coverage.
ƒ Plan Financing: Insurance policy and/or company funding.
ƒ Is Coverage Part of Another Plan? No. (If outpatient is provided,
it is generally a rider to the hospitalization plan.)
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Based on the Indonesian Statistical Agency, medical cost ƒ If the company provides better health benefits than the ƒ See also the latest development in the national social security
inflation in 2007 was 4.31%, compared to 6.59% for general Jamsostek medical scheme does, the company is not obligated system discussed in the Retirement section.
inflation. However, medical insurers believe that health cost to participate in the Jamsostek mandatory medical scheme.
inflation is much higher than general inflation, perhaps as much
as 13% – 18%.

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

Japan Author: StevenE.Brown@mercer.com


Peer Reviewer: Hirota.Ito@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies National Pension (NP) + Employees' Pension Insurance (EPI). PLAN NAME All members receive DB only.
Practice
Typical Market Approximate: All regular employees, from date of hire. Regular employees are PLAN ELIGIBILITY All regular employees, from date of hire.
Practice % of multinational those who are subject to work rules, not contract employees.
and local leading 60 males/60 females. Although NRA is being extended to 65, most NORMAL RET. AGE 60 males/60 females. In general, contributions not currently
companies with a plans still provide benefit accruals only until age 60. permitted for employees at or over NRA.
supplementary plan
In addition to traditional final salary plans and point plans,* cash BENEFIT FORMULA Accumulation of contributions with interest.
97% balance plans were introduced with the 2002 DB Law.
Not typically provided. Lump-sum benefit usually paid on account of DEATH & DISABILITY Included in retirement plan; lump-sum payment of account balance
% of supplementary death or disability. usually paid on account of death or disability.
plans Involuntary retirement: one year of service. Voluntary resignation: VESTING Immediate full vesting after three years of service.
DB: 66% two to three years of service.
Funded: 49% Typically none. Under a DB plan, it is possible to require employees EMPLOYEE Not permitted by law.
Unfunded: 51% to share the plan cost (not a market practice). CONTRIBUTION
DC: 18% Typically full cost of plan. EMPLOYER Full cost of plan.
CONTRIBUTION
Hybrid: 16%
Book reserves as internal financing, or tax-qualified pension plans FINANCING Financed in tax-qualified defined contribution plan governed by the
(TQPP/New DB) or Employees' Pension Funds (EPF) as external DC Law, managed by DC service providers.
financing, or a combination of these. Typically a single plan per
Executive-only company, but industry plans exist.
plans Lump sum, annuity or a combination. FORM OF PAYMENT Choice of annuity or lump sum.
Fairly common, Large companies that have introduced new DB plans tend to use HYBRID ALTERNATIVES Can offer employees the option to receive their DC contribution as
especially among cash balance design rather than a traditional final pay-linked formula. normal salary, depending on the plan design requirements and
larger companies company situation.
Valuations: Funding tests must be carried out each year. Also, every OTHER Employee investment choice: Yes. In general, other than upon death
three to five years a comprehensive funding status review is or disability, employee cannot receive a distribution prior to age 60.
required. Local accounting standard: Japan GAAP.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Many companies are eager to implement DC-type arrangements. ƒ Companies are taking advantage of new DC and cash balance ƒ The normal retirement age (NRA) is being gradually extended to
However, DC plans are still not understood by employees, which vehicles. The 2002 DB Law introduced funded cash balance 65 between 2006 and 2013. Companies that apply an NRA of
presents communication challenges. Due to the low contribution plans and minimum funding requirements. Since the 2001 DC less than 65 need to take action.
limits, DC-only is usually not a viable option because it will not Law, some 11,706 companies (as of March 31, 2009) have ƒ There is currently a proposal in Parliament (DIET) to increase the
deliver a competitive benefit. The investment fees, particularly on implemented a DC-type arrangement. maximum monthly DC contribution limit, to allow employee
actively managed equity investments (paid by the employee in a ƒ Trend to reduce or at least change directors’ pension contributions in DC plans and to raise the maximum participation
DC plan), are also prohibitively high. arrangements. age in DC plans to 65 (currently that age is 60). There are also
ƒ Funding levels in DB plans continue to remain low by ƒ Companies are not allowed to set up a new TQPP from April discussions regarding the easing of the rules that pertain to
international standards. As the Japanese population ages, this 2002, and all TQPP plans must be eliminated by 2012. changing investment options offered to participants and the
will put severe pressure on companies’ cash flow to fund and pay Companies are still in the process of converting current TQPP reduction of the favorable tax-free allowances that apply to lump-
benefits. plans to new plans, including qualified DC, qualified DB and sum payments from retirement plans.
unfunded DB plans.
* A point plan is unique to Japan. Employees earn points based on factors (for example, service, job grade). Points have a monetary value, usually JPY 10,000. Upon retirement, the benefit is calculated as point sum times point value.

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

Japan Author: Dustin.Wasserman@mercer.com


Peer Reviewer: Miho.Osada@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: As part of the universal ƒ Benefits Provided by Social Security: LTD – National Pension ƒ Benefits Provided by Social Security: NP, EPI and WACI
health care scheme, Employees’ Health Insurance (EHI) in (NP), Employees’ Pension Insurance (EPI) and Workers’ Accident provide for death and total disability and dismemberment from
general covers medical, dental, vision, drugs, injections, surgery, Compensation Insurance (WACI) provide a combination of natural causes, accidental causes and work-related events.
hospitalization and nursing. disability pension and lump-sum benefits; disability benefits are
paid according to degree of disability, per statutory ruling. STD – ƒ Plan Eligibility: All employees and directors/executives (except
ƒ Plan Eligibility: All employees and directors/executives (no EHI covers short-term disability via income continuation (two-thirds WACI; directors/executives are typically not eligible).
special arrangement for directors/executives). of employee’s income is secured for a maximum of 18 months ƒ Plan Financing: Contributions to social and labor insurance.
ƒ Dependent Coverage: Employees may opt for family coverage during sickness or injury).
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
(which includes spouse, children, parents, grandchildren, ƒ Plan Eligibility: All employees and directors/executives (except Needs? Inadequate. WACI does not cover directors, it is
grandparents, younger siblings). WACI; directors/executives are typically not eligible). difficult to get approval, the benefit amount is insufficient and it
ƒ Plan Financing: Contributions to social security. ƒ Plan Financing: Contributions to social and labor insurance. is only for on-the-job incidents.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Adequate – coverage is universal and comprehensive. Needs? LTD – Inadequate; STD – Very adequate.

Typical Typical Typical


ƒ Plans: Health Insurance Association (HIA) scheme and ƒ Plans: Long-term disability insurance (LTD) and short-term ƒ Plans: Group term life insurance (GTL) and accidental death &
supplemental private hospitalization insurance (hospitalization). disability rules (STD). dismemberment insurance (AD&D).
ƒ Prevalence: HIA – Nearly all employees opt out of the EHI ƒ Prevalence: LTD – Nearly two-thirds. STD – Less than one-third of
ƒ Prevalence: GTL – Nearly all. AD&D – Less than one-third of
scheme and create or join a single-/multi-employer HIA scheme. multinational and local leading companies.
multinational and local leading companies.
Hospitalization: Less than one-third of multinational and local ƒ Plan Eligibility: All employees and directors/executives.
leading companies provide hospitalization supplementary to ƒ Plan Eligibility: All employees and directors/executives.
ƒ Benefit Description: LTD – Income continuation: 30% to 60% of
compulsory benefits (EHI/HIA). The following describes HIA ƒ Benefit Description: GTL – Death by accidental/natural causes,
last drawn annual income, up to company retirement age; 90-to-
only. total permanent disability: lump sum of two times annual salary.
180-day waiting period. STD – Large companies provide paid
ƒ Plan Eligibility: Same as EHI. disability leave that varies by years of service. Benefit typically AD&D – Death by accidental causes: lump sum of JPY 10
ƒ Dependent Coverage: Same as EHI. ranges from six to 21 months at 100% salary continuation. The million or two times annual salary. Dismemberment per
ƒ Benefit Description: Same as EHI except with typically higher supplementary LTD and STD benefits both are integrated with accident scale: 3% to 100% of death amount.
medical reimbursement level, additional lump-sum benefits and a mandatory benefits. ƒ Employee Contributions: None.
multitude of wellness programs. ƒ Employee Contributions: LTD – None. STD – None.
ƒ Plan Financing: Private insurance policy.
ƒ Employee Contributions: Split with employer. Employee ƒ Plan Financing: LTD – Private insurance policy. STD – Self-funded
contributions tend to be smaller. (salary continuance) and stipulated in company’s rules of ƒ Is Coverage Part of Another Plan? GTL – No. AD&D – Can be
ƒ Plan Financing: Contributions to HIA (typically lower than EHI). employment (RoE). stand-alone or added on as a rider to GTL insurance.
ƒ Is Coverage Part of Another Plan? No. ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ The majority of HIAs will be required to bear more contributions ƒ Growth trend in the LTD market due to need for a benefit plan for ƒ Government-managed EHI premium rates to change to
to the universal health care scheme due to the introduction of the mental sickness, which makes up more than half of disability prefecture-based system. Each prefecture will have different
new medical system for the elderly. claims. Also, more companies are converting to insurance policies premium rate settings.
the risk of old salary continuation benefits written in their RoE.
ƒ As a result of the above, the majority of HIAs have been forced to
increase premium levels to bear the new contribution ƒ Private hospitalization and other various supplemental insurance
requirements, or else disband and revert back to the EHI. coverages are beginning to appear on the market. However, the
benefit levels are still small and are not integrated with the
universal health care system.

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

Malaysia Author: Ozairi.Othman@mercer.com


Peer Reviewer: Hamadah.Othman@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies All members receive DC only. PLAN NAME Employees’ Provident Fund (EPF).
Practice
Typical Market Approximate: Voluntary gratuity scheme: The plan may be open to executives PLAN ELIGIBILITY Discretionary voluntary additional contributions to EPF: Most
Practice only, to nonexecutives only or to both (most common). Usually an common for management employees only, but now extended to non-
% of multinational
employee can join the plan upon date of hire. Nonpermanent staff management employees also. The additional contributions to the
and local leading
usually are not eligible. EPF typically commence on the sixth year of the employee's service
companies with a
with the company.
supplementary plan
55 males/55 females. NORMAL RET. AGE 55 males/55 females.
54%
One-half to one month of average salary (over final one to two years) BENEFIT FORMULA Accumulation of contributions with interest.
per year of service, integrated with any company-financed portion of
% of supplementary the EPF benefit.
plans Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
DB: 8% Vesting benefit: Gradual vesting starts from five years’ service with VESTING Vesting of employer contributions: Immediate full vesting.
DC: 92% the company, with full vesting after 15 or 20 years.
Hybrid: 0% Not required. None. EMPLOYEE Not required. None.
CONTRIBUTION

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)
ƒ Trend is to move toward DC in the form of additional ƒ 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
ƒ 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. ƒ Normal retirement age increased from 56 to 58 for public-sector
employees only, effective July 2008.
ƒ 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

Malaysia Author: Ozairi.Othman@mercer.com


Peer Reviewer: Hamadah.Othman@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: EPF Medical Withdrawal ƒ Benefits Provided by Social Security: Covers work-related injury. ƒ Benefits Provided by Social Security: Covers non-work-related
Scheme – Emergency, outpatient, inpatient, surgical, dental. Benefits include temporary disability, long-term disability income, invalidity or death before age 55. Benefits include invalidity and
ƒ Plan Eligibility: All citizens and residents have access to the medical, constant attendance allowance, rehabilitation. survivor’s pensions, constant attendance allowance, funeral and
Dependent and funeral benefits are provided on death resulting rehabilitation.
network of public hospitals at a heavily subsidized cost.
from injury. ƒ Plan Eligibility: All private-sector employees (excluding domestic
ƒ Plan Financing: Funded by the government through general
ƒ Plan Eligibility: All private-sector employees (excluding domestic servants and self-employed) earning a monthly wage below MYR
taxation.
servants and self-employed) earning a monthly wage below MYR 3,000 must participate. Other employees can elect to join with the
ƒ How Adequate Are Mandatory Benefits in Meeting Employee 3,000 must participate. Other employees can elect to join with the consent of their employers.
Needs? Adequate, but access to certain procedures may be consent of their employers. ƒ Plan Financing: Contributions to social security.
limited due to long waiting time.
ƒ Plan Financing: Contributions to social security.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ How Adequate Are Mandatory Benefits in Meeting Employee Needs? Inadequate (for higher-paid members there is a
Needs? Adequate for lower-income group but not for middle- and maximum pension payable and no protection after age 55).
upper-income groups.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD) and prolonged illness. ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: 100% of multinational and local leading companies. ƒ Prevalence: TPD for 95% and prolonged illness for 24% of ƒ Prevalence: Death for 87% and AD&D for 90% of multinational
ƒ Plan Eligibility: All employees. Typically more than two plans multinational and local leading companies. and local leading companies.
according to employee level – for example, first plan for ƒ Plan Eligibility: All employees. ƒ Plan Eligibility: All employees.
executives, second plan for senior management, third plan for
ƒ Benefit Description: TPD – Lump sum of 24 to 36 times last ƒ Benefit Description: Death – 24 to 36 months of last monthly
middle management, fourth plan for other employees. monthly basic salary. Prolonged illness: 100% of paid leave for basic salary for group term life. AD&D – Double the life benefit
ƒ Dependent Coverage: Spouses and children can be covered the first six months; 50% of paid leave for the next six months; level for accidental death.
upon election by employee. none thereafter. ƒ Employee Contributions: None.
ƒ Benefit Description: Outpatient clinical and specialist, group ƒ Employee Contributions: None. ƒ Plan Financing: Insurance policy.
hospitalization and surgical, dental.
ƒ Plan Financing: TPD – Insurance policy. Prolonged Illness: Self- ƒ Is Coverage Part of Another Plan? Death – No. AD&D – Yes, as
ƒ Employee Contributions: None for employee. 100% of cost for funded.
a rider to life insurance policy.
dependent coverage. ƒ Is Coverage Part of Another Plan? TPD – Yes, as a rider to
ƒ Plan Financing: Outpatient: insured or self-funded; Group group term life policy or part of the supplementary retirement.
hospitalization and surgical: insured; Dental: self-funded. Prolonged Illness – Leave for prolonged illness is an extension
of/in addition to hospitalization leave.
ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate (2008): 10% to 15%. ƒ The cost of inpatient treatment has risen at a rate of 10% to 15% ƒ The government has a plan to introduce a national health fund.
per annum. A similar trend, to a lesser degree, is observed for There has been no further development on the proposed
ƒ The cost to employers may increase as a result of the possible
introduction of a national health fund. outpatient treatment. However, the introduction of a national implementation of this fund.
health fund is expected to provide greater control over providers,
reduce inflationary increases in medical costs of individual
treatment and shift costs to 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. 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

New Zealand Author: Mike.Robinson@mercer.com


Peer Reviewer: Paul.Newfield@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory Nil None PLAN NAME None
Practice
Typical Market Approximate: Discretionary superannuation scheme (can be DB or DC). All PLAN ELIGIBILITY Discretionary superannuation scheme (can be DB or DC). All permanent
Practice permanent employees; often a 6-to-12-month service employees; often 6-to-12-month service requirement. Trend is now to permit
% of multinational
requirement. Most final-salary plans are closed to new entry on commencement of employment, in line with KiwiSaver requirements.
and local leading
members. New members join DC or hybrid section of plan or, Many smaller plans are winding up, with new employees joining KiwiSaver.
companies with a
increasingly, join KiwiSaver. Some employers offer additional superannuation in non-KiwiSaver or offer
supplementary
employees a choice between KiwiSaver and non-KiwiSaver (both are DC).
plan
65 males/65 females. NORMAL RET. AGE 65 males/65 females.
40%
1.0% to1.5% of final average salary per year of membership. BENEFIT FORMULA Accumulation of contributions with interest.
Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
% of
supplementary Vesting benefit: Over 10 to 20 years (usually of plan VESTING Vesting of employer contributions: Over five or 10 years of service or
plans membership but not always). membership. Trend toward immediate full vesting or vesting over a maximum
of five years, starting immediately, has accelerated due to KiwiSaver.
DB: 20%
5% of salary or pensionable salary. EMPLOYEE Not required. Generally, employees have a choice of their contribution rate,
DC: 60% CONTRIBUTION often 2% to 5%. KiwiSaver contributions are a minimum of 2% of gross
Hybrid: 20% taxable earnings.
Depends on the funding position. Cost of benefits frequently EMPLOYER Ratios to employee contribution vary, with the most common contribution
equals 10% to 20% of salary. CONTRIBUTION rates being $1 or $1.50 of employer contribution to $1 of employee
Executive-only contribution, up to a stated maximum employee contribution, normally 5%;
plans alternately, rates are a fixed percentage of salary, such as 5% or 7.5%.
Not prevalent; KiwiSaver compulsory contributions are now fixed at 2% of gross taxable
those that exist are earnings. Some employers are contributing at a higher rate.
typically through the Stand-alone trust. No new schemes being set up. Many FINANCING Stand-alone trust, master trust or industry fund. All new schemes are master
same retirement schemes are now closed to new members, who are being trusts or KiwiSaver plans.
plan as for other offered KiwiSaver instead because of the tax efficiency.
employees, and Lump sum, but some final-salary plans require at least some FORM OF PAYMENT Lump sum.
structured as a part of the benefit (normally 75%) to be taken as a pension.
different category of
Multiple of member contributions. HYBRID ALTERNATIVES Prior to KiwiSaver, were common for new members of existing DB schemes
membership with
(that is, an unallocated DC category was set up for new members).
higher benefit
Valuations: Every three years; however, informal funding OTHER Employee investment choice: Yes, this is a growing trend.
valuations are becoming more common. Local accounting KiwiSaver plans offer tax incentives, investment choice and lock-in to age 65.
standard: IAS 19 for company reporting at least yearly.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ The costs and risks of operating a corporate superannuation ƒ Employer contributions (including salary sacrifice) to KiwiSaver are ƒ Effective July 1, 2007, all employers must offer a workplace
plan have increased significantly over recent years, and exempt from withholding tax, up to a maximum of 2% of salary; this savings scheme to all new permanent employees through
companies are increasingly looking at using master trusts or changed in 2009 from 4%. The tax exemption for employer KiwiSaver or through exemption for employers with a
KiwiSaver for their requirements. Few final-salary plans contributions to KiwiSaver schemes has been extended to complying qualifying alternative workplace savings strategy.
remain open to new members. Many smaller DC plans are superannuation schemes – that is, those generally larger plans that lock ƒ Rules are in place to assist employers in avoiding
also winding up and being replaced by KiwiSaver plans. in benefits until the age of eligibility for New Zealand superannuation contributions both to their current benefit arrangements and,
KiwiSaver plans are DC plans with government subsidies and (currently 65). Minimum employee contributions to KiwiSaver are now compulsorily, to a KiwiSaver/complying fund.
tax concessions, although some concessions have been 2%.
ƒ The maximum employer contributions and minimum
reduced or removed starting April 1, 2009.
employee contributions were reduced to 2% in 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. 42
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

New Zealand New Zealand Author: Mark.Butson@mercer.com


Peer Reviewer: Paul.Newfield@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Outpatient services, ƒ Benefits Provided by Social Security: A percentage of income for No provision.
hospitalization, ambulance services. accident or sickness. Benefits are more generous for accident
ƒ Plan Eligibility: All citizens. than for sickness.

ƒ Plan Financing: Funded out of general taxation. ƒ Plan Eligibility: All citizens.

ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ 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). ƒ 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
ƒ Plans: Medical. ƒ Plans: Short-term disability benefit (STD), total permanent ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: 50% of multinational and local leading companies. disability (TPD) and long-term disability (LTD). ƒ Prevalence: 50% of multinational and local leading companies.
ƒ Plan Eligibility: Often all employees including executives, but may ƒ Prevalence: TPD, LTD or STD – 20% of multinational and local ƒ Plan Eligibility: All employees or all members of a superannuation
leading companies.
have different plans for executives and other employees. plan.
ƒ Plan Eligibility: Varies; normally all employees or all members of
ƒ Dependent Coverage: Varies greatly. ƒ Benefit Description: The death benefit for natural and accidental
a superannuation scheme. causes is three times annual salary.
ƒ Benefit Description: Outpatient services, hospitalization,
ƒ Benefit Description: STD – Salary continuation at 75% of salary
ambulance services. Benefit level varies greatly, with executives ƒ 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.
ƒ Employee Contributions: None for employee. Dependent ƒ Plan Financing: Insurance policy.
ƒ Employee Contributions: None.
coverage contribution by employee varies greatly. ƒ Is Coverage Part of Another Plan? Death benefit through a
ƒ Plan Financing: Insurance policy.
ƒ Plan Financing: Insurance policy. superannuation scheme or a group insurance policy. AD&D
ƒ Is Coverage Part of Another Plan? STD – Normally part of benefits through a superannuation scheme or a group insurance
ƒ 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)
ƒ 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

Pakistan Authors: Gurleen.Kaur@mercer.com and Akhtar & Hasan (Private) Ltd.


Peer Reviewer: Akhtar & Hasan (Private) Ltd.
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Employees’ Old-Age Benefits Institution, or EOBI (DB): Public PLAN NAME Other mandatory schemes: Provident fund (DC) and gratuity (DB).
Practice scheme managed by the government. If an employer has a provident fund, the payment of gratuity is by law
Other mandatory schemes: Gratuity (DB) and provident fund (DC) – optional, but a large number of employers have a gratuity scheme
private schemes sponsored by employers. Companies are required (DB) in addition to the provident fund (DC).
by law to offer either gratuity or provident fund to all employees,
regardless of the sector they work in.
Typical Market Approximate: Gratuity plans: All employees, subject to a minimum service PLAN ELIGIBILITY Provident funds: All employees, subject to a minimum service
Practice % of multinational requirement of six months. requirement of six months.
and local leading Pension plans: Typically management employees only. A few Pension plans: Typically management employees only. A few
companies with a companies offer to all employees. companies offer to all employees.
supplementary plan 60 males/55 females. NORMAL RET. AGE 60 males/55 females.
95% Gratuity plans: Last 30 days’ gross salary for every completed year BENEFIT FORMULA Accumulation of contributions with investment returns.
of service or any part thereof in excess of six months. Gratuity is
% of supplementary paid upon NRA or upon normal termination.
plans Pension plans: Pension fraction varies from 1% of final or final
DB: 0% average salary to 2.33%. Typically benefit is integrated with EOBI.
DC: 0% Included in the retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Accumulated account balance is paid to the beneficiary.
Hybrid: 100%* Vesting period varies, and in case of death, no minimum eligibility. VESTING Vesting period varies, and in case of death, no minimum eligibility.
* A large number of Gratuity plans: None. EMPLOYEE Provident funds: Typically 10% or 8.33%. Typically same percentage
employers provide Pension plans: Typically none. Some plans are contributory. CONTRIBUTION as employer contribution.
both a gratuity (DB) Pension plans: Typically none. Some plans are contributory.
and a provident fund
(DC), while 14% of Gratuity plans: Full cost of plan. EMPLOYER Provident funds: Typically 10% of basic salary. Maximum employer
employers (mostly Pension plans: Typically full cost of plan (15% to 20%). Some plans CONTRIBUTION contribution is 10% (see Key Legislation section). Typically same
multinationals) are contributory. percentage as employee contribution.
provide all three: Pension plans: Varies widely. Typically 12% to 20%.
gratuity, provident
Gratuity plans: Pay as you go, but there is a trend toward trust funds FINANCING Trust fund.
fund and
and the government is actively considering compulsory funding of
supplementary
gratuities.
pension plan (can be
either DB or DC) Pension plans: Typically funded.
Gratuity plans: Lump sum. FORM OF PAYMENT Provident funds: Lump sum.
Executive-only Pension plans: Monthly pension. Pension plans: Monthly pension, reviewed by trustees in light of CPI.
plans: Not prevalent. HYBRID ALTERNATIVES Not prevalent.
14% of employers Valuations: Annually. In some cases, every two to three years. OTHER Employee investment choice: No. Lifestyle option: No.
Local accounting standard: IAS 19.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Since 2005 the government has encouraged the Voluntary ƒ The Finance Act, 2008, imposed a limit of PKR 100,000 per
Pension System (VPS) by giving tax and other incentives. VPS, a annum (in addition to the existing limit of 10% of basic salary) on
DC pension scheme to be administered by companies licensed employers’ contribution to a recognized provident fund in respect
by the SECP to manage VPS funds, has not taken off despite of an employee. Any contribution in excess of the aforesaid limits
aggressive marketing by licensed asset management companies. will be added to employee’s salary for tax purposes. This
ƒ Trend of employers converting their existing DB scheme to DC. legislation is a big setback for provident funds.

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

Pakistan Author: Gurleen.Kaur@mercer.com


Peer Reviewer: Akhtar & Hasan (Private) Ltd.
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by the Provincial Social Security Institutions. ƒ Benefits Provided by the Provincial Social Security Institutions: ƒ Benefits Provided by the Provincial Social Security Institutions:
These include full medical care, including hospitalization, OPD, These include sickness benefits, employment injury, maternity, These include death grant, iddat benefit and survivor pension.
surgical. disablement gratuity, disablement pension. ƒ Plan Eligibility: Workers who are drawing wages not exceeding
ƒ Plan Eligibility: Workers who are drawing wages not exceeding ƒ Plan Eligibility: Workers who are drawing wages not exceeding PKR 10,000 per month or PKR 400 per day and who are
PKR 10,000 per month or PKR 400 per day and who are PKR 10,000 per month or PKR 400 per day and who are employed in registered establishments are liable to be covered
employed in registered establishments are liable to be covered employed in registered establishments are liable to be covered under the scheme in accordance with the provisions of Social
under the scheme, in accordance with the provisions of Social under the scheme in accordance with the provisions of Social Security Ordinance, 1965.
Security Ordinance, 1965. Security Ordinance, 1965.
ƒ Plan Financing: Social security contributions by the employers. In
ƒ Plan Financing: Employers contribute 6% of wages for each ƒ Plan Financing: Social security contributions by the employers. addition to the above, there is compulsory group insurance.
secured worker to the Provincial Social Security Institution. ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ How Adequate Are Mandatory Benefits in Meeting Employee Needs? Inadequate. Needs? Inadequate.
Needs? Medical benefits provided under the Social Security
Ordinance are quite satisfactory.
Typical Typical Typical
ƒ Plans: Medical plans, either self-administered or insured. ƒ Plans: Practices vary. Some employers provide these benefits ƒ Plans: Practices vary. Some employers provide death benefit
ƒ Prevalence: A large number of employers provide medical through insurance arrangements. over and above the minimum prescribed by statute.
benefits during service for employee and family. Some ƒ Plan Eligibility: All employees. ƒ Plan Eligibility: All employees.
employers provide postretirement medical benefits in addition to
ƒ Benefit Description: Lump sum equal to life insurance policy OR ƒ Benefit Description: Death – Multiple of salary or flat sum. When
in-service benefits. X% of salary provided for Y months. provided, multiple of X to Y monthly salary is typical. If flat sum
ƒ Plan eligibility: All employees. benefit is provided, this is usually between X and Y. AD&D –
ƒ Employee Contributions: None.
ƒ Dependent Coverage: Spouses and children typically covered. Typically an additional sum equal to the death benefit is paid
ƒ Plan Financing: Insured policy. upon accidental death.
ƒ Benefit Description: Inpatient and outpatient coverage subject to
ƒ Is Coverage Part of Another Plan? No. ƒ Employee Contributions: None.
some annual limits. If plan is self-funded, employers will
reimburse part of the medical expense, for example, 75% of the ƒ Plan Financing: Insured policy.
actual expense. ƒ Is Coverage Part of Another Plan? Death – No. AD&D – Yes, as
ƒ Employee Contributions: None. a rider to the life insurance policy.
ƒ Plan Financing: Insured or self-funded.
ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Escalation in medical costs. ƒ There is a trend among employers to provide cash in lieu of
ƒ Rising insurance premiums. medical benefits. This is likely to restrict growth of medical plans
in the future.
ƒ Health insurance companies have suffered losses in recent years.
This may result in higher premiums.

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

Philippines Author: Peter.Darvin@mercer.com


Peer Reviewer: Floriza.Molon@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Social security provides a small monthly pension income. In addition, PLAN NAME Home Development Mutual Fund (aka Pag-IBIG Fund) is a mandatory
Practice in the absence of a retirement plan that provides higher benefits, an provident fund, whereby funds are primarily used for low-cost housing
employee who has rendered at least five years of service is entitled loans. Total retirement benefit after at least 20 years of contributions
upon retirement at age 60 to half a month’s salary per year of is equal to total employee and employer contributions plus earnings.
service, whereby half a month is defined as 15 days’ salary + five
days incentive leave + 1/12 of 13th-month pay.
Typical Market Approximate: Permanent, full-time employees typically join plan upon their PLAN ELIGIBILITY Permanent, full-time employees typically join plan upon their
Practice % of multinational confirmation or regularization. Per local law, regularization to confirmation or regularization. Per local law, regularization to
permanent position is after sixth month of employment. permanent position is after sixth month of employment.
and local leading
companies with a 60 males/60 females. NORMAL RET. AGE 60 males/60 females.
supplementary plan
Final month’s base salary for each year of service. Retirement BENEFIT FORMULA Accumulation of contributions with interest.
90% scheme benefits can be used to offset statutory termination
indemnities and mandatory retirement benefits under Labor Code.

% 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)
ƒ Underfunding of DB plans is common. ƒ Due to legal minimum retirement benefit and tax advantages, ƒ The Personal Equity Retirement Act (PERA), signed into law in
ƒ 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 ƒ Due to adoption of IAS reporting standards and volatility of
plans. interest rates, external auditors normally require full accounting providers.

ƒ Tax laws are still more favorable to plans operated as trusts (as valuation every year.
opposed to insured plans). ƒ 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

Philippines Author: Fe.Medroso@mercer.com


Peer Reviewer: Cathy.Pamiroyan@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Mandatory Company Plan – PhilHealth: 45- ƒ Benefits Provided by Social Security: Members are entitled to a ƒ Benefits Provided by Social Security: Death benefits are given
day hospitalization benefit for member or pensioner; 45 days for daily cash allowance equal to 90% of average daily salary credit. through monthly pension or as a lump sum to deceased
dependents (shared); no medical expense benefits (for example, Members can be granted sickness benefits for up to 120 days in members’ beneficiaries. Actual amount of benefit varies
ordinary illness and injuries, intensive care and catastrophic one calendar year. For permanent or partial disability, benefits depending on a member’s paid contribution and credited years of
cases, surgeries or operations, physicians’ professional fees). are granted as a monthly pension or as a lump sum. Actual service. Funeral benefits of PHP 20,000 are also granted to
ƒ Plan Eligibility: Members of Social Security System (SSS) or amount of benefit varies depending on a member’s paid surviving dependents.
contribution and credited years of service.
Government Service Insurance System (GSIS – administers ƒ Plan Eligibility: All employees.
social security for public sector workers), total disability and ƒ Plan Eligibility: SSS and GSIS – Members and dependents.
ƒ Plan Financing: Contributions to social security.
retirement pensioners, survivors of deceased SSS members, and ƒ Plan Financing: Contributions to social security.
dependents. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ How Adequate Are Mandatory Benefits in Meeting Employee Needs? Inadequate.
ƒ Plan Financing: Contribution to PhilHealth.
Needs? Inadequate.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Inadequate.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD). ƒ Plans: Life and accidental death & disablement (AD&D).
ƒ Prevalence: 73% of multinational and local leading companies. ƒ Prevalence: TPD – 80% of multinational and local leading ƒ Prevalence: Life for 75% and AD&D for 79% of multinational and
ƒ Plan Eligibility: Regular and full-time employees who are 18 to 65 companies. local leading companies.
years old. Common practice is to provide different benefit plans ƒ Plan Eligibility: TPD – Employees who are 18 to 65 years old. ƒ Plan Eligibility: Employees who are 18 to 65 years old.
to employees based on employment categories.
ƒ Benefit Description: TPD – Lump sum equal to life insurance ƒ Benefit Description: Life – Lump sum of 24 times monthly salary.
ƒ Dependent Coverage: Yes. benefit. AD&D – Lump sum of 24 times monthly salary.
ƒ Benefit Description: Most companies provide HMO program ƒ Employee Contributions: None. ƒ Employee Contributions: None.
rather than indemnity program. Group medical program includes ƒ Plan Financing: Insurance policy. ƒ Plan Financing: Insurance policy.
inpatient, outpatient, annual physical examination, optional dental
benefits and wellness program. ƒ Is Coverage Part of Another Plan? TPD is included as a rider to ƒ Is Coverage Part of Another Plan? Life – No. AD&D – Typically
the group term life or personal accident policies. under a separate group personal accident policy.
ƒ Employee Contributions: None for employee. Most employers
pay the premium for dependents.
ƒ Plan Financing: Insurance policy.
ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate (projected 2009): 15% to 20%.
ƒ Increasing cost of hospital services results in an increase of
insurance premium. Some companies are going direct to
insurers/providers, and others are considering a self-insured
medical program.

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

Singapore Author: Iene.Muliati@mercer.com


Peer Reviewer: Ben.Facer@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies All members receive DC only. PLAN NAME Central Provident Fund (CPF).
Practice
Typical Market Approximate: Not prevalent, although a few book reserve plans exist, separate PLAN ELIGIBILITY Not prevalent, although a few tax-approved plans exist, separate from
Practice from the CPF. the CPF.
% of multinational
and local leading
companies with a NORMAL RET. AGE 62 males/62 females (67 males/67 females is government's long-term
supplementary plan objective, but no legislation yet on this issue).

Less than 5% BENEFIT FORMULA Accumulation of contributions with interest.


DEATH & DISABILITY Accumulation of contributions with interest.
% of supplementary VESTING The few private pension plans that exist usually provide for a leaving-
plans service benefit based on a vesting scale according to length of service
and applied to the accrued benefits.
DB: 40%
EMPLOYEE Not allowed for tax-approved supplementary plans under Section 5.
DC: 60%
CONTRIBUTION
Hybrid: Rare
EMPLOYER
CONTRIBUTION
Executive-only FINANCING
plans
FORM OF PAYMENT Usually lump sum.
Not prevalent
HYBRID ALTERNATIVES Private plans can be a mix of DB and DC. DB benefit formulas may
have an offset for employer CPF contributions.
OTHER Employee investment choice is available through an investment
scheme.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Employers have been considering setting up plans to ƒ Effective October 1, 2008, employers can contribute to ƒ The Central Provident Fund (CPF) Minimum Sum (MS) topping-up scheme
provide retirement benefits to those of their employees employees’ accounts under the Supplemental Retirement allows members to voluntarily top up their own and family members’ CPF
without Singaporean citizenship or permanent residency. Scheme (SRS) up to the contribution limits and gain tax accounts to build up the minimum sum, using either cash or CPF funds.
These employees currently are ineligible to participate in relief. There is an increased interest in using SRS as a ƒ From January 1, 2009, the required amount set aside into a Medisave account
the CPF scheme. The most common response by retention tool. The change in permissible contributions
will be raised from the current SGD 14,000 to SGD 18,000. The required
companies in the market has been to pay cash in lieu of makes this possible. amount will increase by SGD 2,500 each year until it reaches SGD 25,000 on
benefits.
January 1, 2013.
ƒ CPF LIFE will be launched in September 2009 to provide members with a
lifelong income throughout their retirement. Through this scheme, members will
receive a monthly income for as long as they live, the amount depending on the
cash savings in their CPF Retirement Account (RA). Upon members’
enrollment into CPF LIFE, a portion of the cash savings in their RA will be set
aside as the premium for an annuity. Combined with the remaining cash
savings, members will receive a lifelong monthly income from the draw-down
age. Members will choose from four options, representing a trade-off between
income and capital payment upon death.

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

Singapore Author: Kinch.Ong@mercer.com


Peer Reviewer: Theresia.Kerger@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefit Provided by Social Security: CPF – An individual ƒ Benefits Provided by Social Security: AD&D – Permanent ƒ Benefits Provided by Social Security: Life – Covers death. AD&D
hospitalization insurance plan (MediShield), embedded in the disability known as Dependent Protection Scheme, embedded in – Permanent disability. Known as Dependent Protection Scheme,
Central Provident Fund (for Singapore citizens and permanent CPF. it is another national insurance program embedded in CPF.
residents only). ƒ Benefits Provided by Employer: STD – 14 paid sick leave days or ƒ Plan Eligibility: All CPF members are automatically included
ƒ Benefits Provided by Employer: Foreign medical insurance – 60 days if hospitalized. Work-related LTD – Work injury unless they opt out. All Singapore citizens and permanent
Effective January 1, 2008, employers are required to purchase compensation; the maximum benefit payable is SGD 180,000, residents who are employees must be included in the CPF.
medical insurance for their foreign workers; coverage must be at and the minimum is SGD 60,000. Foreigners are not eligible.
least SGD 5,000 a year. ƒ Plan Eligibility: Social security – All CPF members are ƒ Plan Financing: Each individual’s CPF contribution.
ƒ Plan Eligibility: CPF – All CPF members are automatically automatically included unless they opt out. All Singapore citizens ƒ How Adequate Are Mandatory Benefits in Meeting Employee
included in MediShield unless they opt out. All Singapore citizens and permanent residents who are employees must be included in Needs? Minimal, basic term life coverage.
and permanent residents who are employees must be included in the CPF. Foreigners are not eligible. Work-related LTD – All
the CPF mandatory contribution. Foreigners are not eligible. employees, effective April 1, 2008. STD – All employees, after a
ƒ Plan Financing: CPF – Contributions to CPF. Foreign medical minimum service requirement of three months, who have
insurance: Insurance policy. informed or attempted to inform the employer of their absence
ƒ How Adequate Are Mandatory Benefits in Meeting Employee within 48 hours.
Needs? CPF – MediShield provides basic inpatient coverage for a ƒ Plan Financing: Social security – Contributions to CPF. Work-
large portion of the daily hospitalization expenses in Classes C to related LTD – Insurance is mandatory only for manual workers
B2 in government or restructured hospitals. Coverage is available and nonmanual workers with monthly earnings of SGD 2,000 or
up to age 85 only. Foreign medical insurance: Minimal, basic less. For other employees, employers can choose to either self-
medical coverage. fund or insure this statutory benefit. STD – No advance financing.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Inadequate.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: LTD and TPD; it is not typical to supplement STD. ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: Almost all multinational and local leading companies. ƒ Prevalence: TPD – See life/AD&D prevalence section. LTD ƒ Prevalence: Death for 77% and AD&D for 61% of multinational
ƒ Plan Eligibility: All employees and their eligible dependents. (income continuance) – 4% of companies. and local leading companies.
ƒ Dependent Coverage: Yes. ƒ Plan Eligibility: All staff under age 65 actively at work. ƒ Plan Eligibility: Death and AD&D – All staff under age 65 actively
ƒ Benefit Description: Hospitalization, outpatient clinical, outpatient ƒ Benefit Description: TPD – Lump sum equal to life insurance. LTD at work.
specialist, medical checkup, dental and major medical. Benefit (income continuance) – An annuity equal to a percentage of the ƒ Benefit Description: Death – 24 times basic monthly salary. AD&D
limits are commonly based on employee level. salary paid for three to five years (short term), up to age 65 (long (death or permanent disablement): 26 times basic monthly salary.
ƒ Employee Contributions: None for employee. Up to 50% of term). ƒ Employee Contributions: None.
premium for dependent coverage. ƒ Employee Contributions: None. ƒ Plan Financing: Insurance policy.
ƒ Plan Financing: Hospitalization and major medical are typically ƒ Plan Financing: Insurance policy. ƒ Is Coverage Part of Another Plan? Death – No. AD&D – Yes, as a
fully insured, while outpatient, dental and medical checkup are ƒ Is Coverage Part of Another Plan? TPD – Yes, as a rider to life rider to life insurance policy or stand-alone policy.
commonly self-insured. policy or ADD policy. LTD – No.
ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate (2008): 5.6%. (Source: Yearbook of ƒ Increased interest in portable medical plans so that employees Effective January 1, 2009:
Statistics Singapore, January 2009) can continue coverage following termination of employment. ƒ Means testing framework has started.
ƒ Cost impact due to the removal of hospital subsidies for foreign ƒ Increased demand in purchasing additional medical insurance ƒ The required amount to set aside in Medisave account upon CPF
workers (S pass and work permit holders). policies for foreign workers; employers who have been self- withdrawal is increased to SGD 18,000. It will increase gradually
funding this benefit will have to purchase the government’s until it reaches SGD 25,000 on January 1, 2013.
compulsory employer-paid medical insurance scheme. Employers .
who have an insurance plan for these employees may either
purchase the mandatory plan or upgrade these employees to the
next hospitalization plan provided to other employee categories.
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. 49
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

South Korea Author: Rakheon.Kim@mercer.com


Peer Reviewer: CJ.Kim@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies National Pension Service + mandatory severance pay scheme (SPS) PLAN NAME Funded DC plan under ERSA.
Practice or funded Employee Retirement Security Act (ERSA) plan.
Typical Market Approximate: One year of service. PLAN ELIGIBILITY One year of service.
Practice
% of multinational
and local leading 55 – 60 (males and females). NORMAL RET. AGE 55 – 60 (males and females).
companies with a
supplementary plan Minimum contribution: one month salary (average of the last three BENEFIT FORMULA Minimum contribution: one month salary (average of the last three
months). months).
35%
Upon death and disability, SPS accrued benefit is payable. DEATH & DISABILITY Upon death and disability, DC benefit is payable.
100% after one year of service. VESTING 100% after one year of service.
% of supplementary
plans None. EMPLOYEE Permitted; first KRW 3 million is tax-deductible.
DB: 100% CONTRIBUTION

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)
ƒ Companies can retain existing SPS benefit formula in the new ƒ Since the introduction of ERSA, the Korean corporate pension ƒ 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, ƒ 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. ƒ 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

South Korea Author: James.Park@marsh.com


Peer Reviewers: Johnny.Lee@marsh.com; Sunny.Lee@marsh.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness Benefits Death & Disability Benefits
Mandatory Mandatory Mandatory
ƒ Benefit Provided by Social Security (National Health Insurance): ƒ Benefits Provided by Social Security: LTD (as a rider in a pension ƒ Benefits Provided by Social Security: Provided through Industrial
Benefits in kind (health care benefits, health checkup) and plan) – Disability pension ranging from 60% to 100% of actual or Accident Compensation Insurance. Covers medical care benefits,
benefits in cash (refunding allowance for health care, funeral projected retirement pension. Lump-sum payment of 225% of shutdown benefits, disability benefits, survivors’ benefits, funeral
expenses, compensation for excessive copayment, appliance actual or projected retirement pension. STD – No statutory expenses, nursing benefits, lump-sum compensation.
expenses for the disabled). requirements. ƒ Plan Eligibility: All employees, with a few exceptions.
ƒ Plan Eligibility: All employees and residents. ƒ Plan Eligibility: All actively working persons ages 18 to 60.
ƒ Plan Financing: Contributions to social security.
ƒ Plan Financing: Contributions to social security. ƒ Plan Financing: LTD – Contributions to social security.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ How Adequate Are Mandatory Benefits in Meeting Employee Needs? Inadequate. Most companies provide an additional plan.
Needs? Inadequate – individual must still assume 45% to 55% of Needs? Inadequate. Most companies provide an additional plan.
total medical expense.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD), short-term disability ƒ Plans: Life and accidental death & dismemberment (AD&D).
ƒ Prevalence: 75% of multinational and local leading companies. (STD). ƒ Prevalence: Life for 88% and AD&D for 88% of multinational and
ƒ Plan Eligibility: All employees. The plan is typically provided for ƒ Prevalence: TPD – 87% of multinational and local leading local leading companies.
companies. STD – Not well developed at present.
all employees equally. ƒ Plan Eligibility: All employees.
ƒ Plan Eligibility: All employees.
ƒ Dependent Coverage: Yes (50% of plans). ƒ Benefit Description: Life – Accidental death receives 300% of
ƒ Benefits Provided: TPD – One to three times annual salary for annual salary; death from a disease receives 200% of annual
ƒ Benefit Description: Actual medical expense up to KRW 10
million per hospitalization case. Accidental medical expenses permanent disability (amount will be reduced if partially disabled). salary.
STD – Sick leaves paid on 100% level of salary for 30 days and Employee Contributions: None.
also covered (maximum of KRW 3 million is typical). ƒ
50% level of salary for the next 120 days.
ƒ Employee Contributions: None for employee. None for ƒ Plan Financing: Insurance policy.
ƒ Employee Contributions: None.
dependent coverage. ƒ Is Coverage Part of Another Plan? Life – No. AD&D – Yes, as a
ƒ Plan Financing: TPD – Insurance company. STD – Self-insured.
ƒ Plan Financing: Insurance policy. rider to life insurance policy.
ƒ Is Coverage Part of Another Plan? TPD – Yes, as a rider to life
ƒ Is Coverage Part of Another Plan? Yes, medical plan is a rider to
life insurance policy. insurance policies. STD – No.

MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT


Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Premium for private medical insurance increases steadily (10% ƒ More and more companies are interested in extending medical
on average per year) due to overall high loss ratio in insurance coverage to spouse, child and parent or in adding new coverage
industry. Companies usually accept the premium increasing as such as outpatient.
they have poor loss ratio (approximately 80%).
ƒ Of leading companies, 15% provide medical benefits for
employee’s parents, which costs about KRW 600,000 per year,
per employee. It is still an increasing trend.
ƒ International medical insurance is a viable alternative, particularly
for higher-paid employees.
ƒ While companies adhere to the statutory requirement of a
medical checkup, the majority of companies provide more
complete physical examinations on an annual basis.

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

Taiwan Author: Sunny.Yang@mercer.com


Peer Reviewer: Peggy.Huang@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies (Old System) Taiwan Labor Standards Act (TLSA). TLSA benefit is PLAN NAME (New System) Labor Pension Act (LPA). LPA benefit is portable.
Practice not portable (i.e., employee receives no TLSA benefit unless working Mandatory minimum employer contribution to LPA is 6%. No
for one company until retirement). mandatory employee contribution.
Typical Market Approximate: Following describes discretionary leaving service benefit: PLAN ELIGIBILITY Following describes voluntary additional contributions to LPA:
Practice % of multinational Full-time permanent employees upon date of hire. If employees stay Full-time permanent employees upon date of hire.
and local leading with one company until retirement age, they will receive the TLSA
companies with a benefit but not the leaving service benefit. Employees cannot receive
supplementary plan both the TLSA benefit and the leaving service benefit.
50% 65 males/65 females. NORMAL RET. AGE 65 males/65 females.
1 to 1.5 months’ final average salary per year of service subject to a BENEFIT FORMULA Additional employer contribution rate is no more than 6%.
% of supplementary vesting schedule. Benefit accrual is either the same or slightly below Accumulation of contributions with interest.
plans the TLSA retirement benefit level.

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)
ƒ Most companies are funding at the minimum level (2% of payroll ƒ Due to the implementation of LPA, many companies restructured ƒ 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. ƒ Based on information as of February 2009, less than 30% of ƒ 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

Taiwan Author: Andy.Liu@mercer.com


Peer Reviewer: Abel.Tsai@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: National Health Insurance ƒ Benefits Provided by Social Security: TPD – Labor Insurance ƒ Benefits Provided by Social Security: LI – Lump-sum survivors’
(NHI) provides outpatient services, inpatient services, doctors’ (LI): For disabilities caused by nonoccupational accidents, lump benefits upon death for any cause; lump-sum funeral grant upon
visits, etc. Dental and vision coverage also covered by NHI. sum of up to 40 months’ insured earnings, and lump-sum death of the insured, and funeral grant upon death of spouse,
retirement benefits if total disability is permanent. Taiwan Labor parents or dependents for any cause.
ƒ Plan Eligibility: All employed persons and dependents.
Standards Act (TLSL): Lump-sum retirement benefit if total ƒ Plan Eligibility: All employed persons and dependents.
ƒ Plan Financing: Contributions to NHI. disability is permanent. STD – LI: 50% of insured monthly pay
(up to TWD 43,900) for up to one year for nonoccupational, ƒ Plan Financing: Contributions to LI.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Meet only basic needs. ordinary injuries or sickness. TLSL: 50% of pay for the first 30 ƒ How Adequate Are Mandatory Benefits in Meeting Employee
days for nonoccupational sickness and injury. Needs? Meet only basic needs.
ƒ Benefits Provided by Employer: Full pay during first two years of
medical treatment for occupational sickness and injury.
ƒ Plan Eligibility: All employed persons and dependents.
ƒ Plan Financing: Contributions to LI and TLSL.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Meet only basic needs.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Not typical to supplement. Mandatory benefits only. ƒ Plans: Life and accidental death & dismemberment (AD&D).
ƒ Prevalence: 92% of multinational and local leading companies.
ƒ Benefit Description: Dismemberment benefits may be payable ƒ Prevalence: Life for 92% and AD&D for 98% of multinational and
ƒ Plan Eligibility: All full-time employees. For multinationals, usually under an AD&D policy. Supplementary long-term disability plans local leading companies.
same plan for both executives and other employees. For local are not yet available on the market.
companies, typically two plans. ƒ Plan Eligibility: Life – All employees; AD&D – All employees.
ƒ Dependent Coverage: Yes. ƒ Benefit Description: Life – 26 times monthly salary; AD&D – 28
ƒ Benefit Description: Hospitalization services (daily room and times monthly salary.
board, surgery fees, ambulance services, doctor’s consultation ƒ Employee Contributions: None.
fees).
ƒ Plan Financing: Insurance policy.
ƒ Employee Contributions: None for employee. About 85% of
employers also pay for the dependents. For about 12% of ƒ Is Coverage Part of Another Plan? Life – No; death benefits also
companies, employee pays 100% of dependents’ coverage paid from retirement plan. AD&D – Either independent or as a
costs, with the balance sharing the cost between employee and rider to life insurance policy.
employer.
ƒ Plan Financing: Insurance policy.
ƒ Is Coverage Part of Another Plan? Yes, medical is a rider to term
life and AD&D policies.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)

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

Thailand Author: Bootsarakum.Sinsuk@mercer.com


Peer Reviewer: Wittapon.Jawjit@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Social security + mandatory termination indemnity. PLAN NAME All members receive DB only.
Practice A national pension fund (DC) is anticipated to become a mandatory
vehicle starting in 2010.
Typical Market Approximate: Not prevalent. PLAN ELIGIBILITY This column describes a typical Thai voluntary provident fund. Most
Practice supplementary plans are provident funds. All employees can
% of multinational
and local leading voluntarily join the plan.
companies with a NORMAL RET. AGE 60 males/60 females.
supplementary plan
BENEFIT FORMULA Accumulation of contributions with interest.
72%
DEATH & DISABILITY Included in retirement plan: Death – No. Disability – No.
VESTING Vesting of employer contributions: Usually fully vested after seven
% of supplementary years of service.
plans
EMPLOYEE Required. Varies from 2% to 15% (median is 7%) of monthly base
DB: 5% CONTRIBUTION salary.
DC: 81% EMPLOYER Varies. Typically starts at 5%, then increases based on years of
Hybrid: 14% CONTRIBUTION service. Employer contribution must equal or exceed the employee
contribution. Employers typically provide a 100% match.
FINANCING Plan managed by an approved fund manager (bank or life insurance
Executive-only
company or a finance and security company).
plans
FORM OF PAYMENT Lump sum and annuity.
Not prevalent
HYBRID ALTERNATIVES Not prevalent.
OTHER Employee investment choice: Yes. Investment choice is available
starting in 2008 for the Master Funds.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Benefit payments are expected in 2014 for old-age pension, and ƒ Trend among companies to offer a voluntary provident fund. ƒ The Thai government is planning to introduce a mandatory
social security is considering a reform to have enough funding for ƒ The Master Funds have become available, and companies have national pension fund in 2010. Due to the overlaps of the policy
retirees on old-age pension and old-age lump sum. There are a with the voluntary provident fund, however, implementation might
begun to review the providers that offer the most attractive
few options, including increasing the retirement age and options. be postponed. Employers and employees alike will be required to
employer contributions. pay contributions set at 3% of salary. Final details of the
ƒ Many Japanese subsidiaries in Thailand adopted IFRS/IAS19 legislation are yet to be finalized.
starting 2008 due to the transition in adoption of the accounting
ƒ A universal pension fund is being proposed to the government as
standards in Japan.
a retirement benefit that will cover employees who are not eligible
ƒ The Securities and Exchanges Commission of Thailand will for the social security benefit.
enforce the adoption of IFRS/IAS19 for the public companies
listed in the Stock Exchange of Thailand under the SET50 index
(starting 2011) and the SET100 index (starting 2013).

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

Thailand Author: Nichanant.Dulsari@mercer.com


Peer Reviewer: Wittapon.Jawjit@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Outpatient services, ƒ Benefits Provided by Social Security: LTD. ƒ Benefits Provided by Both Social Security and Employee Welfare
inpatient services, hospitalization, dental, work-related benefits. ƒ Benefits Provided by Employer: STD – According to the Labor Fund: Death – natural causes, death – accidental causes, funeral
ƒ Plan Eligibility: All employees. grant.
Law, all employees have the right to take unlimited sick leave
ƒ Plan Financing: Contributions to social security. until recovery. Employers are required to provide 100% salary ƒ Plan Eligibility: All employees.
continuation for up to 30 days per year.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ Plan Financing: Contributions to social security.
ƒ Plan Eligibility: All employees.
Needs? Inadequate. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Financing: LTD – Contributions to social security. STD – No Needs? Inadequate.
advance financing. Paid, when required, from company assets.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Inadequate.
Typical Typical Typical
ƒ Plans: Medical, medical checkups, dental. ƒ Plans: Total permanent disability (TPD); STD is not typical to ƒ Plans: Life and accidental death & dismemberment (AD&D).
ƒ Prevalence: Outpatient services for 97%, hospitalization and supplement. ƒ Prevalence: Life for 92% and AD&D for 92% of multinational and
surgical for 99%, medical checkups for 77% and dental for 64% ƒ Prevalence: TPD – 80% of multinational and local leading local leading companies.
of multinational and local leading companies. companies. ƒ Plan Eligibility: Life – All employees; AD&D – All employees.
ƒ Plan Eligibility: All employees. ƒ Plan Eligibility: All employees. ƒ Benefit Description: Death – natural causes, death – accidental
ƒ Dependent Coverage: Slightly more than half of companies cover ƒ Benefit Description: Lump-sum benefit in event of permanent causes, AD&D: Similar benefit level to life coverage, with
both employee and spouse or dependent. The coverage level for disability and dismemberment, with average of 24 times monthly average of 24 times monthly base salary.
spouse or dependent is either the same as employee or slightly base salary. ƒ Employee Contributions: None.
lower. ƒ Employee Contributions: None.
ƒ Plan Financing: Insurance policy.
ƒ Benefit Description: Outpatient services, hospitalization and ƒ Plan Financing: Insurance policy.
surgical, medical checkups, dental care. ƒ Is Coverage Part of Another Plan? Life – No. AD&D – Yes, as a
ƒ Is Coverage Part of Another Plan? Yes, as a rider to life rider to life insurance policy.
ƒ Employee Contributions: None for employee.
insurance policy.
ƒ Plan Financing: Insurance policy (except for the largest
employers). Medical checkups are typically self-funded. Dental
plans are typically self-funded.
ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate (2008): 15% to 25% (varies from hospital to ƒ Trend among companies is to offer a flexible benefits plan, ƒ Effective from July to December 2009, the contribution rate to
hospital). especially in the automotive, high-technology and pharmaceutical social security for both employer’s and employee’s portion will be
industries. As of now about 17% of companies offer flexible plans cut to 3% from 5%.
with no standard design. Most often medical, dental, vision
benefits, and medical care of spouse and children are included in
the flexible benefit package.

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

Vietnam Author: Iene.Muliati@mercer.com


Peer Reviewer: Ben.Facer@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Social insurance law (includes unemployment insurance) PLAN NAME All members receive DB only.
Practice + mandatory termination indemnity (DB).
Typical Market Approximate: Not prevalent. PLAN ELIGIBILITY Not prevalent.
Practice % of multinational NORMAL RET. AGE
and local leading
companies with a BENEFIT FORMULA
supplementary plan DEATH & DISABILITY
Less than 1% VESTING
EMPLOYEE
% supplementary CONTRIBUTION
plans EMPLOYER
DB: 100% CONTRIBUTION
DC: 0% FINANCING
Hybrid: 0% FORM OF PAYMENT
HYBRID ALTERNATIVES
Executive-only OTHER
plans: Not prevalent
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Pension legislation is almost nonexistent. This brings ƒ The retirement industry is still in its infancy, but there are ƒ Effective May 1, 2009, the new salary ceiling for social security
uncertainty but also flexibility in terms of plan design and solutions for proactive companies. An unfunded cash balance contribution has been raised to VND 13.0 million per month (up
operation. arrangement (DB in the IAS 19 sense) seems to be the favored from VND 10.8 million per month in 2008).
ƒ Lack of tax incentives. At present it seems that the provision of option at the moment. Mercer is currently aware of at least two ƒ Effective January 1, 2009, enterprises with 10 employees or more
large multinational companies that have chosen this route.
retirement benefits is tax neutral when compared to cash are required to provide unemployment insurance (UI) for
compensation. Several more companies are inquiring about possible options. Vietnamese employees who have signed indefinite-term labor
ƒ There are currently no investment funds suitable for retirement contracts or definite-term contracts of between12 and 36 months.
plans in Vietnam. ƒ When unilaterally terminating an employee who has been
employed for at least 12 months, the employer must pay the
employee a statutory severance allowance equivalent to half a
month’s salary (including certain allowances) for each year of
service. New rules as of January 2009 exempt employers who
have 10 or more employees, due to payment to the UI fund.

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

Vietnam Author: Ronnie.Tang@mercer.com


Peer Reviewer: Theresia.Kerger@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Medical insurance covers ƒ Benefits Provided by Both Social Insurance Fund and Mandatory ƒ Benefits Provided by Social Security: Death as a result of a labor
medical examination and inpatient and outpatient treatment at Company Plan: Short-term disability benefits and long-term accident or illness, or while retired/receiving monthly pension.
state-owned and private medical establishments that have disability benefits. ƒ Plan Eligibility: All employees. Expatriates are not currently
contracts with social insurance agencies.
ƒ Plan Eligibility: All employees. Expatriates are not currently obliged to contribute to Social Insurance.
ƒ Plan Eligibility: All employees. Expatriates are not currently obliged to contribute to Social Insurance.
ƒ Plan Financing: Contributions to social security.
obliged to contribute to Social Insurance. ƒ Plan Financing: Contributions to social security.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Financing: Contributions to social security.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee Needs? Benefits may not be adequate, since they are based on
ƒ How Adequate Are Mandatory Benefits in Meeting Employee Needs? Adequate. minimum wage.
Needs? With the lifting of restrictions on the rates charged by
hospitals, many cardholders have found themselves turned away
or forced to pay cash to ensure proper care, which makes them
seek private treatment and pay cash rather than risk potentially
substandard or delayed medical care.
Typical Typical Typical
ƒ Plans: Hospitalization and outpatient. ƒ Plans: Total permanent disability (TPD). ƒ Plans: Life and accidental death & dismemberment (AD&D).
ƒ Prevalence: Around 80% of companies. ƒ Prevalence: The majority of companies that provide ƒ Prevalence: Life for 42%; AD&D for 98% of multinational and
ƒ Plan Eligibility: All employees. supplemental death coverage provide TPD. local leading companies.

ƒ Dependent Coverage: Around 44% of companies provide ƒ Plan Eligibility: All employees. ƒ Plan Eligibility: All employees.
coverage for dependents. ƒ Benefit Description: Lump sum equal to life insurance policy. ƒ Benefit Description: Life – Death from natural or accidental
causes receives a median lump sum of VND 82.5 million, or 30
ƒ Benefit Description: Hospitalization and surgical, outpatient ƒ Employee Contributions: None.
clinical, and medical checkup. times monthly salary. AD&D – Lump sum of VND 203.0 million,
ƒ Plan Financing: Insurance policy. or 30 times monthly salary.
ƒ Employee Contributions: None.
ƒ Is Coverage Part of Another Plan? Yes, as a rider to the life ƒ Employee Contributions: None.
ƒ Plan Financing: With regard to medical checkups, companies insurance policy.
ƒ Plan Financing: Insurance policy.
typically prefer to sign a contract with selected clinic directly,
while hospital and surgical and outpatient clinical services are ƒ Is Coverage Part of Another Plan? Life – No. AD&D – Often as a
offered on an insured basis. rider to the life insurance policy.
ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate (2008): 20%. ƒ A rising income level and a poor public health care system have ƒ A new personal income tax (PIT) law will have an impact on
ƒ 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. ƒ
medical plans in their benefits package, as well as private life
ƒ 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
ƒ Presently, some companies are seeking a high-end scheme with
still be treated in public hospitals.
a flexible plan for employees.
ƒ 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

Czech Republic Author: Petr.Kudlak@mercer.com


Peer Reviewer: Martin.Macha@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Social security. PLAN NAME All members receive DB only.
Practice
Typical Market Approximate: Not prevalent. PLAN ELIGIBILITY The following describes voluntary supplementary pension insurance
Practice with state subsidy.
% of multinational
and local leading All employees after three months of service.
companies with a
NORMAL RET. AGE 62 males/60 females (reduction for number of children raised).
supplementary plan
BENEFIT FORMULA Accumulation of contributions, state subsidy and interest.
63%
DEATH & DISABILITY Pension plan based on supplementary voluntary pension scheme
does not include death and disability benefits.
% of supplementary
plans Death and disability benefits are typically included in the pension plan,
if the retirement plan is based on life insurance.
DB: 0%
VESTING Vesting of employer contributions: Immediate full vesting.
DC: 100%
EMPLOYEE Typically required. Average contribution is a flat rate of CZK 6,000
Hybrid: 0% CONTRIBUTION annually; maximum tax-effective contribution is CZK 18,000 annually.

EMPLOYER Typically 3% of employee gross wage.


Executive-only CONTRIBUTION
plans
FINANCING Authorized pension fund. The policy is individual – between the
Not prevalent; individual and the fund. If the company has a preferred provider, it
instead, fairly typically determines with the provider some extra advantages for its
common is an employees who want to join the pension plan. Assets of the insured
endowment policy are separated from the fund’s assets.
(insurance against
risk of death and on FORM OF PAYMENT Choice of lump sum or annuity.
survival) with a life HYBRID ALTERNATIVES Not prevalent.
insurance company,
especially among OTHER Employee investment choice: No.
larger companies According to Czech Association of Pension Funds, 2008 plan assets
were 78.8% invested in bonds, 3.5% in governmental T-bonds, 9.6%
in term deposits, 3.1% in shares and unit certificates, and 5.0% other.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Very conservative investment choice of pension funds, which ƒ The number of companies in the private sector with pension ƒ Effective January 1, 2008, employer may deduct contributions for
leads to minimal differences between funds’ investment returns. plans has grown rapidly since 2000, when tax incentives for both retirement and endowment policies, up to CZK 24,000 annually
ƒ Investment return of pension funds has significantly decreased employees and employers were built into the system. There has per employee. This amount is also free of mandatory social
been continuous increase of assets under pension plan security charges if the employer sets the pension scheme
in recent years due to high acquisition costs of pension funds.
management in recent years. contribution rule in internal policy. Employer contributions above
ƒ Only Czech citizens and EU citizens who contribute to the this limit behave the same way as salary expense. There is a new
mandatory social security system are eligible for a legislation in process that will disable employer right to limit
supplementary pension scheme. employee choice on pension provider. In addition, transferring
pension policies between providers will be subject to a fee
charged to the employee.

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

Czech Republic Author: Petr.Kudlak@mercer.com


Peer Reviewer: Martin.Macha@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Full or partial health care ƒ Benefits Provided by Social Security: Long-term disability (LTD), ƒ Benefits Provided by Social Security: Survivors’ benefits and
coverage for general practitioner and specialist visits, medicines, short-term disability (STD), sickness benefits, maternity benefits, work-related flat-rate benefits.
hospital care, prescription drugs, basic dental treatment and invalid benefits. ƒ Plan Eligibility: All employees.
some medical aids.
ƒ Benefit Provided by Employer: Sick day coverage for days four to ƒ Plan Financing: Contributions to social security.
ƒ Plan Eligibility: All employees. 14 of illness.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Financing: Contributions to social security. Fees introduced ƒ Plan Eligibility: All employees.
Needs? Inadequate.
in 2008 for appointment at GPs, hospitalization and copayments ƒ Plan Financing: Contributions to social security (employer and
for selected drugs (system of fees with maximum annual limits).
employee).
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Adequate.
Needs? Partially; inadequate for above-average earners.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Long-term disability (LTD), sick pay, total permanent ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: 33% of multinational and local leading companies. disability (TPD). ƒ Prevalence: 43% of multinational and local leading companies, of
ƒ Prevalence: LTD for 14% and sick pay for 41% of multinational which 76% cover death, 89% accidental death and 72% AD&D.
ƒ Plan Eligibility: All employees. Typically two plans – one plan for
and local leading companies; TPD is part of supplementary Plan Eligibility: All employees.
executives only and a second plan for all other employees. ƒ
pension plan.
ƒ Dependent Coverage: No. ƒ Benefit Description: Death – two times annual salary. AD&D –
ƒ Plan Eligibility: Sick pay for management only; LTD for all
ƒ Benefit Description: Polyclinic, ambulance, 24-hour help line, Double the death benefit.
employees; TPD (pension plan) for all employees.
general practitioner, doctor home visits, dental, vision. ƒ Employee Contributions: None.
ƒ Benefit Description: Sick pay as income continuation, typically a
ƒ Employee Contributions: None. percentage of salary (average is 89%). TPD – Lump sum equal ƒ Plan Financing: Premium paid by employer.
ƒ Plan Financing: Contract with private medical facilities. Annual to life insurance benefit. LTD – Accumulated account balance. ƒ Is Coverage Part of Another Plan? AD&D commonly as a rider to
fee paid by employer directly to private clinic. ƒ Employee Contributions: None; employer contributions for LTD death.
ƒ Is Coverage Part of Another Plan? No. are taxed as employee’s income.
ƒ Plan Financing: 74% self-administered plan, 19% insured
scheme.
ƒ Is Coverage Part of Another Plan? LTD – Yes, part of pension
plan. TPD – Yes, as a rider to life insurance. STD – No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Premium paid on life insurance policies where the employer is ƒ As of January 1, 2009, there are no benefits for the first four days
the policyholder is treated as income for employee; income tax of sickness. Sickness benefits will be paid by the employer from
and social security charges must be paid. days four to 14; then payment is made by the state authorities.
ƒ Selected individually based life insurance products can be
exempt from tax and mandatory social security fees up to the
legally set limits (currently CZK 24,000 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. 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)
ƒ Expenses by employers cumulatively for all insured ƒ 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
ƒ Benefits Provided by Social Security: Inpatient hospital benefits, ƒ Benefits Provided by Social Security: A short-term disability ƒ 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
ƒ Plan Eligibility: All salaried employees are eligible to participate ƒ 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 ƒ 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) ƒ Plan Financing: Contributions to social security.
in case of an accident or are eliminated in case of a work-related
ƒ Plan Financing: Contributions to social security. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
accident.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee Needs? Inadequate.
ƒ Plan Financing: Contributions to social security.
Needs? Inadequate.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Inadequate.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD) and short-term disability ƒ Plans: Death (life insurance) and accidental death &
ƒ Prevalence: 98% of multinational and local leading companies. (STD). dismemberment (AD&D).
ƒ Prevalence: TPD for 95% and STD for 65% of multinational and ƒ Prevalence: Death and AD&D – 98% of multinational and local
ƒ Plan Eligibility: All employees. Sometimes the level of benefits
local leading companies. leading companies.
varies between executives and other employees.
ƒ Dependent Coverage: Yes. ƒ Plan Eligibility: All employees. ƒ Plan Eligibility: All employees.

ƒ Benefit Description: Inpatient benefits, outpatient services ƒ Benefit Description: TPD – Lump sum of 14 or 28 monthly ƒ 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 ƒ
15,000). ƒ Employee Contributions: None. ƒ Plan Financing: Insurance policy.
ƒ Employee Contributions: Typically none, although 20% – 30% of ƒ Plan Financing: TPD and STD – Insurance policy. ƒ Is Coverage Part of Another Plan? Death (life insurance) – No.
companies require this for employee coverage. Employee
ƒ 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.
ƒ Plan Financing: Insurance policy.
ƒ 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)
ƒ Cumulative employer contributions for all insured supplementary ƒ 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

Hungary Author: Eric.Szegedi@mercer.com


Peer Reviewer: Oxana.Nagy@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Pay as you go (Pillar I). PLAN NAME Mandatory pension fund, or MPF (Pillar II).
Practice
Typical Market Approximate: Not prevalent. PLAN ELIGIBILITY Voluntary mutual pension fund, or VMPF (Pillar III). The law states
Practice that the employer undertaking an obligation to pay an employer’s
% of multinational
and local leading contribution may not exclude any single employee who is in a labor
relationship with the employer for at least six months. Eligibility is
companies with a
typically after three-month probation period.
supplementary plan
70% NORMAL RET. AGE 62 males/62 females.
BENEFIT FORMULA Accumulation of contributions with interest.

% 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)
ƒ There are significant restrictions on what the employer can ƒ Voluntary pension benefits are typical elements of flexible benefit ƒ 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.
ƒ 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 ƒ 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

Hungary Author: Eric.Szegedi@mercer.com


Peer Reviewer: Oxana.Nagy@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: General and specialist ƒ Benefits Provided: Sickness and disability benefits. The employer ƒ Benefits Provided by Social Security: The temporary widow’s
care; hospitalization; sanatorium and spa treatment, with strict pays the first 15 days of sick leave, equivalent to 80% of the pension is equivalent to 60% of the deceased person’s pension.
restrictions; maternity care; medicines; medical aids. Mandatory employee’s base salary. Statutory benefits are paid from day 16 The permanent pension is calculated as 30% of the deceased
annual occupational health checkups paid for by the employer. for up to one year. Amount is 60% of pre-disability salary. person’s pension. Orphans’ pension is 30% of the widow’s
ƒ Plan Eligibility: All persons employed in a company registered in Disability benefits vary according to age, length of service and pension. This amount is doubled for full orphans or a surviving
disability category. disabled parent. Another dependent’s pension is equal to the
Hungary.
widow’s pension.
ƒ Plan Financing: Contributions to social security. ƒ Plan Eligibility: All persons employed in a company registered in
Hungary. ƒ Plan Eligibility: All persons employed in a company registered in
ƒ How Adequate Are Mandatory Benefits in Meeting Employee Hungary.
ƒ Plan Financing: Contributions to social security.
Needs? Quality of service level is poor.
ƒ Plan Financing: Contributions to social security.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? LTD benefit levels are not very high, and criteria for ƒ How Adequate Are Mandatory Benefits in Meeting Employee
proving disability are quite high. Needs? Not quite adequate.
Typical Typical Typical
ƒ Plans: Medical.
ƒ Plans: Total permanent disability (TPD), accidental disability and ƒ Plans: Life and accidental death & dismemberment (AD&D).
ƒ Prevalence: 77% of companies offer a voluntary health fund short-term disability (STD).
(30% of these provide this as a core benefit, 78% as part of a flex ƒ Prevalence: Life for 43% and AD&D for 54% of multinational and
scheme). Eligibility: Required by law to be all employees. ƒ Prevalence: TPD for 30%, accidental disability for 46% and STD local leading companies.
ƒ Prevalence: 7% of companies offer a private medical insurance for less than 2% of multinational and local leading companies. ƒ Plan Eligibility: All employees.
(all of these provide this as part of a flex scheme). Eligibility: ƒ Plan Eligibility: All employees. ƒ Benefit Description: Life – One times annual salary for life
Typically executives only if provided as a core benefit. Extended
ƒ Benefit Description: TPD and accidental death – Typically two to insurance. AD&D – Two times annual salary.
to all employees if part of a flex scheme.
three times annual salary.
ƒ Dependent Coverage: Yes if VHF; no if private medical ƒ Employee Contributions: None.
insurance. ƒ Employee Contributions: None.
ƒ Plan Financing: Insurance policy.
ƒ Benefit Description: Ambulance; dental screening; private clinic ƒ Plan Financing: Insurance policy.
visits, medicine. ƒ Is Coverage Part of Another Plan? Life – No. AD&D – Accidental
ƒ Is Coverage Part of Another Plan? Accidental disability and TPD death provided as rider to life insurance policy.
ƒ Employee Contributions: Typically none.
– Yes, as a rider to life insurance policy or retirement plan. STD –
ƒ Plan Financing: VHF – Accumulation of contributions plus Yes.
interest. Private medical – Insurance policy.
ƒ Is Coverage Part of Another Plan? VHF – No. Private medical –
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)
ƒ Voluntary health benefits are typical elements of flexible benefit
plans (of companies with a flexible benefit plan, 78% include
contributions to a voluntary health fund).
ƒ There is a trend toward implementing flexible benefits
(prevalence has increased from 35% in 2004 to 60% in 2008).
ƒ Because of state health reform measures, voluntary health
benefits may grow in popularity.

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

Israel Author: Doron.Neev@crg-ltd.co.il


Peer Reviewer: Israel.Goldstein@crg-ltd.co.il
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies National Insurance Institute (NII). PLAN NAME All members receive DB only.
Practice
Typical Market Approximate: Only old plans exist. All employees are eligible, usually upon date of PLAN ELIGIBILITY Usually all employees upon date of hire. Some companies insist on a
Practice hire. Some companies insist on service or age requirement, but this service requirement (for example, six to 12 months), but this is quite
% of multinational
and local leading is quite rare. rare. About 50% of all employed persons receive both a pension plan
and managers’ insurance (a growing trend).
companies with a
supplementary plan 67 males/62 females. NORMAL RET. AGE 67 males/62 females – identical to age of seniority state pension paid
100% by NII. For this reason, ages apply to managers’ insurances too.
With at least 10 years of covered service, pension is 2% of career BENEFIT FORMULA Accumulation of contributions with interest, managing expenses
average earnings for each year of service, up to 70%. deducted.
% of supplementary
plans Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
DB: 70% No market data at this time. VESTING No market data at this time.
DC: 30% Always required, except for government and National Institute EMPLOYEE Always required, except for government and National Institute
employees. Typical contribution is 5% – 7% of base salary. CONTRIBUTION employees. Typical contribution is 5% – 7% of base salary (can be
Hybrid: 0% split across more than one plan).
Always 5.0% – 7.5% of base salary. EMPLOYER Always 5% of base salary (can be split across more than one plan).
Executive-only CONTRIBUTION
plans
Six of the “old funds” belonged to the Federation of Labor (Histadrut) FINANCING Most new pension funds are managed by insurance companies.
Managers’ insurance and accounted for more than 90% of total membership. They were Supplementary retirement benefits may also be provided through
(DC) is prevalent nationalized due to bad management of the Histadrut. bank provident funds.
Pension funds: Monthly annuity. FORM OF PAYMENT Pension funds pay monthly annuity. With managers’ insurance, there
is a choice between annuity and lump sum, but a minimum of 80%
monthly payment is mandatory.
Not prevalent. HYBRID ALTERNATIVES Not prevalent.
OTHER Employee investment choice: Yes (six different tracks).
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Since 2000, the benefits sector has been in a process of change: ƒ For many years, private companies, mainly the high-tech sector ƒ In 2007, a new general collective agreement was signed, entitling
The pension funds were bought by the insurance companies; the (which is rather large in Israel), avoided the Histadrut pension a pension to every worker. It applies to salaried employees
responsibility for building the pension plan was transferred to the funds. Instead, private companies used mainly managers’ without an existing retirement plan and applied gradually from
employee; and segregation arose between producers, brokers insurances and provident funds (usually with banks). January 1, 2008, with mandatory employer and employee
and consultants with clear new regulations. Soon, a much greater ƒ Most new funds are now owned by insurance companies. The monthly contributions. The initial contributions are 0.833% for
mobility between funds will be possible. employees and 1.667% for employers, increasing to a combined
trend in recent years, and mainly in large high-tech organizations,
total contribution of 15% by January 1, 2013.
ƒ The market is unstable, and laws and regulations are being is to offer employees an improved pension package by
changed quite often due to different reforms. It is recommended combining both pension funds and managers’ insurance. ƒ Plan eligibility is subject to completion of nine months’ service for
to check carefully current regulations before making any employees hired before January 1, 2009, who were not
decision. previously in an occupational plan and to completion of only six
months’ service for employees starting after January 1, 2009.
There is only a three months’ service requirement if employee
was previously in an occupational 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. 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

Israel Author: Doron.Neev@crg-ltd.co.il


Peer Reviewer: Israel.Goldstein@crg-ltd.co.il
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Member choice between ƒ Benefits Provided by Social Security: LTD – Pension equivalent ƒ Benefits Provided by Social Security: Survivors’ pension is 16%
four health insurance service providers. Each service provider is to between 50% and 150% of the full individual pension of national average salary, payable to a widow or widower aged
required to supply a comprehensive, standardized “basket” of (housewives: 30% to 90%), depending on degree of disability. 50 or over who is caring for a dependent child; 12% if aged 40 to
services mandated by law. ƒ Benefits Provided by Employer: STD – One and a half days of 49. Children’s pensions of 7.5% to 10% of national average
ƒ Plan Eligibility: All residents. sick leave for each month of employment (maximum 90 days). salary are provided.
ƒ Plan Financing: Contributions to one of four health insurance Sick pay is a percentage of the employee’s standard ƒ Plan Eligibility: All employees.
services. wage/salary, as follows: day one, 0%; days two and three, ƒ Plan Financing: Contributions to social security.
37.5%; days four to 90, 75%.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Inadequate (long waiting lists for hospitalization and non- ƒ Plan Eligibility: LTD – All employees. STD – All workers who Needs? Inadequate.
urgent operations). have been employed for at least 12 months.
ƒ Plan Financing: LTD – Contributions to social security. STD –
Paid by employer from company assets.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? STD – Adequate (unless sick frequently). LTD –
Inadequate.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Long-term disability (LTD) and short-term disability (STD). ƒ Plans: Death.
ƒ Prevalence: More than 50% of multinational and local leading ƒ Prevalence: LTD – Almost 100% of multinational and local ƒ Prevalence: Death – Almost 100% of multinational and local
companies (higher percentage in high-tech industry). leading companies. STD – Not typical to supplement except leading companies.
ƒ Plan Eligibility: One basic plan is offered to all employees, with among high-tech companies. ƒ Plan Eligibility: Death – All employees.
the option to upgrade the plan at employees’ cost. ƒ Plan Eligibility: All employees. ƒ Benefit Description: Death – If a DB plan is provided: Spouse’s
ƒ Dependent Coverage: Yes. ƒ Benefit Description: LTD – If a DB plan is provided: New pension pension is 40% of salary for a widow and 20% for a widower.
ƒ Benefit Description: Coverage for services not covered by social funds provide age-related benefits based on separate scales for New pension funds provide age-related benefits based on
security, including special, private operations and private men and women. Maximum monthly income is 75% of salary for separate scales for men and women. If a DC plan is provided:
hospitalization (which allow for shorter waiting periods and/or full disability except in cases requiring nursing care. If a DC plan Accumulated savings, together with life assurance cover. Life
better "hotel"); transportation abroad, if treatment is not available is provided: Optional disability coverage for additional premium assurance benefit level varies greatly with each individual policy.
in Israel; coverage for serious illness; consultations with (typically up to 2.5% of salary). Maximum monthly income is 75% ƒ Employee Contributions: 5% for death (via pension
specialists. of salary for full disability. STD – Typical among high-tech plan/managers' insurance).
ƒ Employee Contributions: Typically small employee contribution companies to provide 75% of salary from day one with medical ƒ Plan Financing: Death – Part of retirement plan.
certificate.
for basic plan. Employee pays full cost of dependent coverage ƒ Is Coverage Part of Another Plan? Death – Yes, retirement plan.
and/or plan upgrade (if available). ƒ Employee Contributions: None.
ƒ Plan Financing: Insurance policy. ƒ Plan Financing: LTD – Part of retirement plan. STD – Paid by
employer from company assets.
ƒ Is Coverage Part of Another Plan? No.
ƒ Is Coverage Part of Another Plan? LTD – Yes, retirement plan.
STD – No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)

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

Poland Author: Andrzej.Narkiewicz@mercer.com


Peer Reviewer: Krzysztof.Nowak@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Old, mandatory state system (pays benefits to people born before PLAN NAME New system: Pillar I (all employees) + Pillar II (most employees born
Practice 1948) plus an additional mandatory company-paid pension and after 1948).
disability benefit equal to a one-time payment of one monthly salary
(paid when any employee is granted retirement rights or is unable to
work due to disability)
+ mandatory termination indemnity (DB).
Typical Market Approximate: None. PLAN ELIGIBILITY There are two forms of supplementary pension provision: Pillar III
Practice (tax-approved plans) and Pillar IV (nonqualified plans).
% of multinational
and local leading In Pillar III: All employees. Service criteria can be introduced but
companies with a cannot result in a situation whereby less than 50% of the staff is
supplementary plan eligible for the plan (or one-third, if the company employs more than
29% 500 people). Typically up to three months (length of service)
required. In Pillar IV: Any eligibility criteria are possible.
NORMAL RET. AGE Pillar III: 60 males/60 females.
% of supplementary
plans BENEFIT FORMULA Accumulation of contributions with interest.

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.

FINANCING Pillar III: Group unit-linked insurance policy (most common).


FORM OF PAYMENT Choice of lump sum or installments.
HYBRID ALTERNATIVES Possible only in Pillar IV.
OTHER Employee investment choice: Yes.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Lack of tax incentives: In Pillar III, only tax incentives are tax ƒ There are no DB plans in Poland. Not possible to use DB
exemptions for capital gains and social security contributions. In formulas in Pillar III plans. Very low growth of pension plans’
Pillar IV, there are no incentives. Employee contribution limit in popularity.
Pillar III. Complicated process in Pillar III plan registration;
employer must negotiate plan conditions with trade unions or
employees’ representation and provide detailed statements.

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

Poland Author: Andrzej.Narkiewicz@mercer.com


Peer Reviewer: Krzysztof.Nowak@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefit Provided by Social Security: All medical services are ƒ Benefits Provided by Social Security: STD – From the 34th day of ƒ Benefits Provided by Employer: Company is obliged to pay a
provided by the National Health Fund (Narodowy Fundusz disability, 80% of employee salary is paid by social security. LTD death benefit to the family of the employee; benefit varies
Ochrony Zdrowia). – Disability pension paid, which varies on degree of invalid between one month’s and six months’ salary (depending on the
status. length of service: one salary if the length of service is less than
ƒ Benefit Provided by Employer: Labor law requires that employer
pay cost of employee medical checkups. ƒ Benefits Provided by Employer: STD – 80% of salary (100% if 10 years, six salaries if more than 15 years).
sickness occurs during pregnancy) for the first 33 days of ƒ Plan Eligibility: All employees.
ƒ Plan Eligibility: All employees.
disability. ƒ Plan Financing: Self-insured.
ƒ Plan Financing: National Health Fund.
ƒ Plan Eligibility: All contract employees. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Financing: First 33 days are self-insured; then funded by Needs? Inadequate.
Needs? Adequate in theory; in practice, long waiting time for
social security.
treatments.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Adequate.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD). ƒ Plans: Life and accidental death & dismemberment (AD&D).
ƒ Prevalence: 81% of multinational and local leading companies. ƒ Prevalence: TPD – Less than 20% of multinational and local ƒ Prevalence: Life for 55% and AD&D for 60% of multinational and
leading companies. local leading companies.
ƒ Plan Eligibility: All employees, with a richer plan for higher-level
employees (executives, managers, other employees). ƒ Plan Eligibility: All employees. ƒ Plan Eligibility: All employees.
ƒ Dependent Coverage: No. ƒ Benefit Description: TPD – Lump sum of 12 to 24 times monthly ƒ Benefit Description: Life – 12 to 24 times monthly salary. AD&D –
ƒ Benefit Description: Consultation with specialists, simple salary. Double indemnity of death benefit.
procedures and treatments, outpatient care. May include ƒ Employee Contributions: None. ƒ Employee Contributions: None.
extensive dental care and hospitalization for top management ƒ Plan Financing: Insurance policy. ƒ Plan Financing: Insurance policy.
employees.
ƒ Is Coverage Part of Another Plan? Yes, typically a rider to life ƒ Is Coverage Part of Another Plan? Life – No. AD&D – Either as a
ƒ Employee Contributions: None.
insurance policy. rider to life insurance policy or as a separate group personal
ƒ Plan Financing: Contract with private clinic. Not an insured accident program.
benefit.
ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Taxation of medical benefits is not clearly defined. ƒ Market for health insurance product is currently developing, and ƒ The issue of taxation of medical benefits to employees is
ƒ There is a lack of employer awareness of employee absence, as more products are appearing on the market. currently being contested and should come to conclusion by the
end of 2009.
well as a lack of tools and data needed for absence
management.

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

Russia Author: Boris.Saenko@mercer.com


Peer Reviewer: Marketa.Vylitova@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Labor Pension Provision (Pillar I is DB with DC element; Pillar II is for PLAN NAME Labor Pension Provision (Pillar I is DB with DC element; Pillar II is for
Practice persons born after 1967, DC only). persons born after 1967, DC only).
Typical Market Approximate: Not prevalent. PLAN ELIGIBILITY Following describes typical practice among multinational companies:
Practice Full-time employees, in some cases companies apply a minimum
% of multinational
and local leading service requirement.
companies with a NORMAL RET. AGE 60 males/55 females.
supplementary plan
BENEFIT FORMULA Accumulation of contributions with interest.
29%
DEATH & DISABILITY Included in retirement plan: Death – No. Disability – No.
VESTING Vesting of employer contributions: Cliff or step vesting after three to
% of supplementary five years, depending on the sector and structure of the workforce.
plans Vesting is common as a retention/saving tool.
DB: 10% EMPLOYEE Required in 65% of cases but capped to a certain limit. Typical
DC: 80% CONTRIBUTION contribution: 4% of base salary.
Hybrid: 10% EMPLOYER Median at 4%, range of 1% – 7% of base salary and matching is
CONTRIBUTION usually on 1:2 basis (employee:employer). Higher contributions for
executives and high earners.
Executive-only
FINANCING Majority of plans are administered by approved non-state pension
plans
funds (NPFs; 93% of plans and a growing trend) and insurance
Becoming less companies (5% of plans). It is possible to implement a pension plan
common; many as a rider to a long-term life insurance product with an insurance
companies that have company (not a trend). Offshore arrangements also exist but are not
executive plans wish prevalent (2%).
to cascade the plans
FORM OF PAYMENT Annuity, lump sum, term annuity or a combination.
down in the future
(that is, enroll other HYBRID ALTERNATIVES Not prevalent.
employee groups)
OTHER Employee investment choice: Rare but becoming more available.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Limited employee plan participation rate has increased the ƒ As of January 2009, the insured persons have the right to pay ƒ As of 2010, legislation changes were replacing UST with
administrative costs of supplementary DC plans. Income tax rate additional insurance contributions to the mandatory Pillar II insurance payments. This innovation will in fact provide a
is extremely low (currently 13% personal income tax) and is pension and receive a matching (up to a limit) contribution from significant increase of the expenses previously covered under
expected to increase in the mid- to long-term. the state for 10 years. UST.
ƒ Still a limited number of trusted providers. ƒ Tax incentives for employees in Pillar III have increased in 2009. ƒ Since the beginning of 2009, citizens have had the option of
voluntarily financing the funded component of their future pension
ƒ Investment strategies of pension providers are extremely ƒ Employer contributions to both Pillar I and Pillar II are tax-
conservative, which leads to low investment returns. deductible up to 12% of payroll. However, contributions to Pillar within the framework of mandatory pension insurance. Employers
are permitted to contribute more to the mandatory pension
III are subject to social security tax (UST).
scheme. Both employee’s and employer’s contributions will be
ƒ Growth of supplementary pension plans from 6% of companies in tax deductible up to some limit, and employer’s contributions are
2004 to 29% in 2008 (according to Mercer’s Total Remuneration not subject to UST. Moreover, a crucial new feature has been
Survey). introduced: the state’s obligation to co-finance its citizens’
voluntary contributions (up to a limit) for 10 years.

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

Russia Author: Boris.Saenko@mercer.com


Peer Reviewer: Marketa.Vylitova@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefit Provided by Social Security: Basic general and specialist ƒ Benefits Provided by Social Security: LTD – Limited income ƒ Benefits Provided by Social Security: Death of spouse –
care, hospitalization, vaccination, sanatorium treatment, dental continuation. STD – Sickness, limited income continuation. survivors’ benefits (temporary or permanent); workers’
care, maternity leave, medication, appliances, and travel costs to ƒ Plan Eligibility: All employees. compensation (work-related death).
and from the place of treatment; also treatment for HIV and AIDS,
ƒ Plan Financing: Contributions to the state Social Insurance Fund. ƒ Plan Eligibility: All employees.
cancer, TB, and transplant-related surgeries.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ Plan Financing: Contributions to social security.
ƒ Plan Eligibility: All permanent residents.
Needs? Inadequate. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Financing: Contributions to state’s Medical Insurance Fund.
Needs? Inadequate (calculation of principal as old-age pension).
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Services are limited, often low in quality and subject to
long waiting periods.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD) and short-term disability ƒ Plans: Life and accidental death & dismemberment (AD&D).
ƒ Prevalence: 96% of multinational and local leading companies. (STD). ƒ Prevalence: Life – 61% of multinational and local leading
ƒ Plan Eligibility: All employees after three months of service. ƒ Prevalence: TPD – 36% provide disability benefits. STD – 53% companies. AD&D – 35%, typically as a rider to life insurance
provide sick pay in addition to statutory requirements. plan.
Multinationals often have two to three plans – one plan for
expatriates, a second plan for local executives only and a third ƒ Plan Eligibility: All employees after three months of service. ƒ Plan Eligibility: Life and AD&D – All employees after three
plan for all other employees. ƒ Benefit Description: TPD – Lump sum of one to two times annual months of service.
ƒ Dependent Coverage: Yes (29% of plans for professionals; salary. STD – Sick-day pay up to 100% of monthly base salary ƒ Benefit Description: Life – Covers death due to natural or
higher prevalence for executive plans). for up to 30 days. accidental causes (two times annual base salary is typical).
AD&D – Doubles death coverage (to four times annual salary).
ƒ Benefit Description: Outpatient services, doctor home visit, ƒ Employee Contributions: None.
dental, planned and emergency hospitalization, ambulance ƒ Employee Contributions: None.
ƒ Plan Financing: STD – Sick pay organized as a self-administered
services, 24-hour telephone service. Increasing coverage of plan through payroll. LTD – Insurance policy. ƒ Plan Financing: Insurance policy.
pregnancy and delivery.
ƒ Is Coverage Part of Another Plan? STD – No. LTD – Yes, as a ƒ Is Coverage Part of Another Plan? Life – No. AD&D – Yes, as a
ƒ Employee Contributions: None for employee. Increasingly
rider to the life insurance policy. rider to life insurance policy.
required for dependent coverage (children and spouse).
ƒ Plan Financing: Insurance policy.
ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate has stayed high (15.5% in 2008). ƒ Tax deductions for employer-sponsored voluntary personal
ƒ Psychiatric hospitalization and treatment of dreaded diseases (including medical) insurances have increased to 6% of payroll.
such as HIV/AIDS, tuberculosis, inborn diseases or cancer are ƒ Medical exclusions exist for dreaded diseases. However, there is
excluded from the insurance coverage of the medical plan, and “dreadful disease” (critical illness) insurance, which offers a lump-
patients must rely on low-quality state hospitals or privately sum benefit that can be used for purchase of drugs or private
financed treatment (where available). treatment.

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

Slovakia Author: Petr.Kudlak@mercer.com


Peer Reviewer: Martin.Macha@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Pillar I with National Insurance Company (NIC). PLAN NAME DSS – Pension savings (Pillar II, with pension managing company):
Practice Mandatory for all career starters as of January 1, 2005; others could
have joined voluntarily until June 30, 2006.
Typical Market Approximate: Not prevalent. PLAN ELIGIBILITY DDS – Voluntary pension scheme (Pillar III): All employees may join.
Practice % of multinational Common practice for employer contribution entitlement is to
successfully pass probation period (three months).
and local leading
companies with a NORMAL RET. AGE 62 males/62 females (Pillar III).
supplementary plan
BENEFIT FORMULA Accumulation of contributions with interest.
54%
DEATH & DISABILITY Included in retirement plan: Death – No. Disability – No.
VESTING Vesting of employer contributions: Immediate full vesting.
% of supplementary
plans EMPLOYEE Not required. Contribution may be percentage or fixed amount (tax
CONTRIBUTION deductibility is a fixed amount). Typical contribution is 3% of the base
DB: 0% salary.
DC: 100% EMPLOYER Contributions discretionary per employer. Percentage or fixed
Hybrid: 0% CONTRIBUTION amount; tax deductibility on 3% of salary.
FINANCING Insurance policy of the pension fund.
Executive-only FORM OF PAYMENT Choice of annuity or lump sum.
plans
HYBRID ALTERNATIVES Not prevalent.
Not prevalent;
OTHER Employee investment choice: No.
instead, fairly
common is an Pillar III plans can be either individual-sponsored or company-
endowment policy sponsored plans. The decision is the employer’s.
(see Trends and
Restrictions section)
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ There is a potential need for investment consulting for pension ƒ During the choice period until June 2006, the pension savings ƒ The three-pillar model was introduced in 2004 – 2005. Future
managing companies that manage the Pillar II pensions. The system (Pillar II) attracted the majority of the working population. legislative changes may take a place, as a lot of those who had
investment possibilities are limited and result in very conservative In 2008 the possibility to opt back to Pillar I did not attract many an option to join Pillar II (mandatory private scheme) split their
investment strategies. Slovak employees. social security contributions between state and private providers.
ƒ Tax relief for endowment and unit-linked policies was removed as ƒ Fairly common is an endowment or unit-linked policy (insurance State-provided Pillar I remains underfinanced due to decrease in
total cash inflow.
of January 1, 2006. This led to misunderstandings, changes in against risk of death and on survival) with life insurance
coverage of population and reduction of assets managed by companies, especially among larger companies.
insurance companies.
ƒ As of January 2008, people could opt out of the funded pension
scheme for six months and then go back to the pay-as-you-go
Pillar I, having their accumulated assets transferred from the
mandatory Pillar II back into the Pillar I.

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

Slovakia Author: Petr.Kudlak@mercer.com


Peer Reviewer: Martin.Macha@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Basic health services – ƒ Benefits Provided by Social Security: STD (as of the 11th day of ƒ Benefits Provided by Social Security: Survivors’ benefits and
general practitioner and specialist visits, medicines, hospital care, illness), LTD (work-related sickness). work-related benefits.
prescription drugs, basic dental treatment, and some medical ƒ Benefits Provided by the Employer: Employer responsible for ƒ Plan Eligibility: All employees.
aids.
income continuation for the first 10 days of illness. The first three ƒ Plan Financing: Contributions to social security.
ƒ Plan Eligibility: All employees. calendar days of incapacity to work constitute 25% of the
assessment base; the fourth to the 10th calendar days of ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Financing: Contributions to social security.
incapacity constitutes 55% of the assessment base. Needs? Inadequate.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Eligibility: All employees.
Needs? Adequate.
ƒ Plan Financing: Contributions to social security.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Partially adequate; inadequate for high earners.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Short-term disability (STD) or sick pay, and total ƒ Plans: Life and accidental death & dismemberment (AD&D).
ƒ Prevalence: 35% of multinational and local leading companies. permanent disability (TPD). ƒ Prevalence: Life, AD&D – 43% of multinational and local leading
ƒ Plan Eligibility: All employees. Often two plans are offered – one ƒ Prevalence: STD/sick pay – 55% of multinational and local companies, where 96% cover death from any cause, 88%
leading companies. TPD – Majority of companies that provide life accidental death and 67% AD&D.
plan for executives only and a second plan for all other
employees. insurance provide TPD coverage. ƒ Plan Eligibility: All employees.
ƒ Plan Eligibility: All employees.
ƒ Dependent Coverage: No. ƒ Benefit Description: Life – Two times annual salary (includes
ƒ Benefit Description: TPD – Lump sum of one to two times annual death by any cause). AD&D – Double indemnity in case of
ƒ Benefit Description: Polyclinic, ambulance, 24-hour telephone
salary. STD – Employers typically supplement statutory accidental death (a percentage of this in case of
service, personal doctor, home visit.
requirement and top up statutory sick pay, up to 100% of dismemberment).
ƒ Employee Contributions: None. employee’s salary. ƒ Employee Contributions: None.
ƒ Plan Financing: Employer contracts directly with private clinic. ƒ Employee Contributions: None.
ƒ Plan Financing: Insurance policy.
ƒ Is Coverage Part of Another Plan? No. ƒ Plan Financing: Sick pay: 72% self-administered plan, 14%
ƒ Is Coverage Part of Another Plan? AD&D – Included in life
insured scheme. TPD – Insurance policy.
insurance.
ƒ Is Coverage Part of Another Plan? TPD – Either through AD&D
plan (common) or retirement plan (rare). STD – No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Recent legislation for mandatory health insurance providers may
lead to state monopoly reconstruction, as private providers will
possibly lose the ability to freely manage their operations.

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)
ƒ HIV/AIDS continues to have an impact on the cost of risk ƒ Smaller and medium-size employers are moving toward multi- ƒ The state has commenced with a consultative process aimed at
benefits. employer (“umbrella”) funds. the establishment of a national retirement fund, which could have
ƒ The Pension Funds Second Amendment Act prescribes minimum ƒ 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
ƒ DB funds are unlikely to continue unless the fund has large current realistic expectations, no changes are anticipated prior to
ƒ 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
ƒ Benefits Provided by Social Security: Hospitalization, surgery, ƒ Benefits Provided by Social Security: Long-term disability ƒ 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.
ƒ Plan Eligibility: All citizens. The individual must not belong to a months or more. Short-term disability benefits are paid to those ƒ Plan Eligibility: All citizens in formal employment.
private medical aid/scheme. earning a maximum ZAR 149,736 per year.
ƒ Plan Financing: Contributions to the Unemployment Insurance
ƒ Plan Financing: Contributions to social security. ƒ Plan Eligibility: All citizens. Fund.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ Plan Financing: LTD – Paid by social security, and no ƒ 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. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Adequate, but poorly administered.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Long-term disability (LTD) and short-term disability (STD). ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: 98% of multinational and local leading companies. ƒ Prevalence: LTD for 95% and STD for 95% of multinational and ƒ Prevalence: Death for 98% and AD&D for 98% of multinational
ƒ Plan Eligibility: One plan for all employees (including executives) local leading companies. and local leading companies.
in formal employment. ƒ Plan Eligibility: LTD and STD – Full-time permanent employees. ƒ Plan Eligibility: Death – Full-time permanent employees. AD&D –
ƒ Dependent Coverage: Yes. ƒ Benefit Description: LTD – Temporary disability income benefits Commonly provided to blue-collar employees only.
ƒ Benefit Description: Member choice of medical coverage ranging paid for six months after a waiting period of three months. At the ƒ 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
ƒ 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. ƒ 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. ƒ Employee Contributions: None. pension plan. AD&D – None.
ƒ Plan Financing: Traditional medical scheme, or increasingly ƒ Plan Financing: LTD – Insurance policy. STD – Paid by employer ƒ Plan Financing: Death – Insurance policy, although some large
through insured plan. from company assets. funds are self-funded. AD&D – Insurance policy.
ƒ Is Coverage Part of Another Plan? No. ƒ Is Coverage Part of Another Plan? LTD – Yes, as part of ƒ 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)
ƒ Over the last five years the cost of medical treatment has ƒ Employers continue to take appropriate steps to limit their ƒ 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 ƒ 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%. ƒ 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

Turkey Author: Baris.Tisli@mercer.com


Peer Reviewer: Sibel.Yucesan@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Social Insurance Institution (SSK) PLAN NAME All members receive DC only.
Practice + mandatory termination indemnity (DB).
Typical Market Approximate: Not prevalent. PLAN ELIGIBILITY All employees; typically enter plan at age 18, typically after six
Practice % of multinational months of service.
and local leading NORMAL RET. AGE 56 males/56 females.
companies with a
BENEFIT FORMULA Accumulation of contributions with interest.
supplementary plan
24% DEATH & DISABILITY Included in retirement plan: Death – No. Disability – No.
VESTING Effective August 9, 2008, vesting up to five years is possible.

% of supplementary EMPLOYEE Employee contributes 2% – 3%. Matching of contributions is typical


plans CONTRIBUTION practice, where a 3% employee contribution is matched equally by
the employer. Employees are free to contribute more.
DB: 2%
EMPLOYER The median practice is taking 3% of the gross salary as a company
DC: 98% CONTRIBUTION contribution; 5% is on 75th percentile. Some use a standard amount,
Hybrid: 0% such as $100 for all employees. However, 80% of companies follow
the practice of contributing 3% of the gross salary.
FINANCING All contributions are paid to individual accounts in the custodian
Executive-only
bank, invested in pension mutual funds and managed by private
plans
asset management companies.
Some DC plans
FORM OF PAYMENT Choice of annuity or lump sum.
HYBRID ALTERNATIVES Not prevalent.
OTHER Employee investment choice: Yes.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Contributions by employers are in line with defined tax advantage ƒ A new law regulates the vesting schedule in corporate plans (Act
limits (10% of annual gross salary and annual minimum wage). No: 26842, Articles 21 and 22), effective August 9, 2008. The act
ƒ Careful cost and tax-liability calculation is necessary for accurate accommodates arrangements about vesting and enables
companies to set up a vesting schedule for up to five years in
budgeting and to eliminate extra gross-up costs.
their pension plan design. However, implementing a vesting
schedule is not obligatory; it is the employer’s decision.
ƒ Social security provisions have seen increased state retirement
age and reduced pension benefits. Changes to state provisions
may mean private plan rules need amending. There is likely to be
increased demand for private provision due to reductions in state
benefits.

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

Turkey Author: Sibel.Yucesan@mercer.com


Peer Reviewers: Baris.Tisli@mercer.com; Hakan.Elgin@marsh.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: All hospitalization and ƒ Benefits Provided by Social Security: Short-term disability ƒ Benefits Provided by Social Security: Death in any case.
medical costs, including medical, dental and vision. benefit, total permanent disability (lump sum), long-term disability ƒ Plan Eligibility: All employees.
ƒ Plan Eligibility: All employees. (pensions). STD – 50% salary continuation (66% if there is at
least one dependent), paid from the third day and up to a ƒ Plan Financing: Contributions to social security.
ƒ Plan Financing: Contributions to social security. maximum of 18 months. If the person is hospitalized, the benefit ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ How Adequate Are Mandatory Benefits in Meeting Employee is reduced. Needs? Substantially inadequate for mid-level and high earners.
Needs? Substantially inadequate in major cities and metropolitan ƒ Benefits Provided by Employer: STD – 100% salary continuation
areas because of population density and frequency of services during the first two days of incapacity. Some companies further
used. supplement state benefits based on labor agreements.
ƒ Plan Eligibility: All employees.
ƒ Plan Financing: Contributions to social security. STD – No
advance financing; paid when required from company assets.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Substantially inadequate for mid-level and high earners.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD). ƒ Plans: Life and accidental death & dismemberment (AD&D).
ƒ Prevalence: 94% of multinational and local leading companies. ƒ Prevalence: LTD – 66% of multinational and local leading ƒ Prevalence: Life for 66% and AD&D for 73% of multinational and
ƒ Plan Eligibility: Usually for all white-collar workers. Executives companies. local leading companies.
have a slightly different plan in half of the cases. ƒ Plan Eligibility: All white-collar workers are covered for long-term ƒ Plan Eligibility: Life, AD&D – All employees.
disability due to accident and disease. Blue-collar employees are
ƒ Dependent Coverage: No in general (though yes in some ƒ Benefit Description: All white-collar employees are covered for
industries). covered for long-term disability due to accident only. death due to natural and accidental cases. Blue-collar workers
ƒ Benefit Description: TPD – Lump sum of one times annual salary. are covered for death due to accidental cases only. Life – Lump
ƒ Benefit Description: Inpatient and outpatient treatment in private
Employee Contributions: None. sum of one times annual gross salary is the market practice.
hospitals, ambulance services, dental, vision, maternity, optional ƒ
AD&D – Typically double the life benefit level. Dreaded disease
checkups. The percentage of reimbursement is typically 80% but ƒ Plan Financing: Insurance policy.
may be as high as 100%. coverage is typically half of the life benefit.
ƒ Is Coverage Part of Another Plan? TPD – Yes, as a rider to life ƒ Employee Contributions: None.
ƒ Employee Contributions: None.
insurance policy.
ƒ Plan Financing: Insurance policy.
ƒ Plan Financing: Insurance policy.
ƒ Is Coverage Part of Another Plan? Life – No. AD&D – Yes, as a
ƒ Is Coverage Part of Another Plan? No.
rider to life insurance policy.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ According to a recent law, state-insured employees can also use ƒ Even with the consolidation of the social security institutions
private hospitals with social security institution copayment ranges (SSK-Bağkur-Emekli Sandığı) and health reform, the
from 20% to 100%. government is planning to modify existing health programs with
some amendments.

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

United Arab Emirates Author: Paul.W.Beaton@mercer.com


Peer Reviewer: Meena.Raza@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies UAE nationals: Social security benefits (SSB) under the Pension and PLAN NAME Not applicable. SSB and EOSB plans as described opposite are DB
Practice Social Security Federal Law No. 7 (1999). Expatriate employees are only.
not covered. Expatriate employees: End of service benefit (EOSB).
Typical Market Approximate: Typical practice is generally statutory (SSB)/mandatory (EOSB) PLAN ELIGIBILITY 13% of companies offer a supplementary DC plan as defined in the
Practice practice as defined in the sections below. UAE nationals: All sections below. All employees are typically eligible, although some
% of multinational
employees are eligible to receive SSB. Expatriate employees: All companies may limit eligibility to expatriates only given the SSB
and local leading
employees are eligible to receive EOSB after one year of service. payable for UAE nationals.
companies with a
supplementary plan UAE nationals: 60 for males; 55 for females. Expatriate employees: NORMAL RET. AGE Typically 60 for both males and females.
Not applicable for EOSB. Termination at any time.
13%
UAE nationals: UAE, excluding Abu Dhabi– 60% of salary, after 15 BENEFIT FORMULA Fund balance (accumulation of contributions plus investment returns,
% of supplementary years increasing by 2% per year to a maximum 100% after 35 years. minus charges).
plans Abu Dhabi – 48% of salary, after 15 years increasing by 3.2% per year
to a maximum 80% after 25 years. Expatriate employees: 21 days’
DB: 10%; small salary for each of first five years + 30 days’ salary for each additional
proportion of year, provided total benefit does not exceed two years’ salary.
companies fund
UAE nationals: For death or disability prior to retirement, a pension DEATH & DISABILITY Death – Fund accrued at time of death is usually payable to the
EOSB either equal to
projected to NRA is payable to the deceased’s dependents. deceased’s dependents. No other death benefits are provided.
or exceeding
Expatriate employees: A lump-sum EOSB at time of death or total Disability – Typically not applicable.
minimum statutory
disability is payable to the deceased’s dependents.
benefit
1 year. VESTING Two to five years
DC: 90%; nearly all
new plans are DC UAE nationals: 5% of salary (including allowances), capped at AED EMPLOYEE Not required, but voluntary contributions are permitted.
60,000 per month. Expatriate employees: Not applicable. CONTRIBUTION
Hybrid: 0%
UAE nationals: UAE, excluding Abu Dhabi – 15% of salary (public- EMPLOYER 5% – 15% of salary. Contributions can be designed to provide at
sector employees) or 12.5% (private-sector employees). Abu Dhabi – CONTRIBUTION least the statutory minimum end-of-service indemnity payment.
Executive-only
15% of salary. Contributions capped at AED 60,000 per month.
plans
Expatriate employees: Full cost of plan.
Not prevalent UAE nationals: Payroll deductions at source. Expatriate employees: FINANCING DC retirement/savings plans are typically managed by international
Book reserved, but a minority of companies fund the benefit via pension providers in offshore locations.
contributions to DC-style savings accounts.
UAE nationals: Pension. Expatriate employees: Lump sum. FORM OF PAYMENT Lump sum. Some providers offer conversion of account to annuity.
Not prevalent. HYBRID ALTERNATIVES Not prevalent.
OTHER Employees can typically select their own investment funds.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ In the past, employers have not typically supplemented statutory ƒ The absence of SSB, the loss of membership of home country
plans for UAE-national employees due to the relatively generous plans due to lengthening periods of assignment, and frequent job
SSB. Where supplemental benefits are provided, there is a changes have resulted in (mostly Western) preferences for
preference for offering UAE nationals an EOSB rather than a international pension plans. Some employers have started to
supplementary DC international pension plan. offer these plans in an increasingly competitive labor market.
ƒ For expatriates, mandatory EOSB schemes were not previously ƒ International pension providers are becoming increasingly aware
supplemented due to the preference for keeping employees in of Sharia law and its requirements. Providers have started to
home country plans, especially for short- to medium-term offer Sharia-compliant investment funds.
assignments.

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

United Arab Emirates Author: Paul.W.Beaton@mercer.com


Peer Reviewer: Meena.Raza@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Employer: Aside from Abu Dhabi and the ƒ Benefits Provided by Employer: STD – Maximum 90 days for ƒ Benefits Provided by Employer: Death benefits are only work-
Dubai International Financial Center (DIFC), medical benefits are each year of service, following a probationary period at 100% of related. Benefits are equal to 24 months of the last received
not mandatory with the exception of work-related injuries. Abu salary for the first 15 days, 50% of salary for the next 15 days basic salary, subject to a minimum of AED 18,000 and a
Dhabi-based employers must provide employees and their and subsequently with no payment. LTD – Full salary for first six maximum of AED 35,000.
dependents with private medical insurance as per requirements months, reduced by half for the subsequent six months. Upon ƒ Plan Eligibility: All employees, although benefits in the DIFC may
of the Health Authority – Abu Dhabi (HAAD). The DIFC also permanent total disability, compensation is equal to the differ according to a separate labor law that has not yet been
requires health insurance to be provided to all employees. mandatory death benefit. Benefits are paid in case of work- finalized.
ƒ Plan Eligibility: For private medical insurance, all employees related injuries only. ƒ Plan Financing: Usually fully insured and funded by employer.
(including expatriates) and their dependents. For the Dubai ƒ Plan Eligibility: All employees are eligible for STD and LTD. There are requirements in Abu Dhabi and certain free zones
health contribution plan, all employees who are employed in There may be some eligibility deviations in the free zones, such (such as Jebel Ali Free Zone, Media City and Internet City) to
Dubai. as the DIFC for LTD. fully insure this benefit.
ƒ Plan Financing: For private medical insurance, benefits are ƒ Plan Financing: Benefits are usually fully insured and funded ƒ How Adequate Are Mandatory Benefits in Meeting Employee
usually fully insured and funded solely by employers. For the solely by employers. Needs? Not adequate.
health contribution plan, it is still unclear how this fee will be
collected.
Typical Typical Typical
ƒ Plans: Medical and dental (generally only multinationals for ƒ Plans: Long-term disability (LTD), short-term disability (STD) and ƒ Plans: Death (natural causes and/or accidental), and business
dental). total permanent disability (TPD). travel accident (BTA).
ƒ Prevalence: 86% of companies provide supplemental medical ƒ Prevalence: STD – A minority of companies. LTD/TPD – 46% of ƒ Prevalence: Death – 79% of companies. BTA – 61% of
coverage; 55% of companies provide dental coverage. companies. companies.
ƒ Plan Eligibility: Most employers provide benefits to all employees. ƒ Plan Eligibility: All full-time employees. ƒ Plan Eligibility: All full-time employees.
ƒ Dependent Coverage: Yes, spouse and children. ƒ Benefit Description: STD benefits vary considerably. LTD/TPD ƒ Benefit Description: Lump-sum benefits range from 12 to 48
ƒ Benefit Description: Medical – Hospitalization, outpatient benefits vary, with employers providing lump-sum benefits equal times monthly salary, though multiples are often larger in the
services, ambulance services, diagnostic services and maternity. to 24 times monthly salary (percentage of benefit applicable for banking sector; 24 times is typical.
Dental – Diagnostic examination, preventive and basic care. partial disability). ƒ Employee Contributions: None.
ƒ Employee Contributions: Typically none. Where employee ƒ Employee Contributions: None. ƒ Plan Financing: Fully insured.
contributions are required for family coverage, the average ƒ Plan Financing: STD – Fully insured or self-insured. LTD/TPD – ƒ Is Coverage Part of Another Plan? No.
contribution is 28% to 40% of the annual premium. Fully insured.
ƒ Plan Financing: Fully insured. ƒ Is Coverage Part of Another Plan? STD – No. LTD/TPD –
ƒ Is Coverage Part of Another Plan? No. Usually provided 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)
ƒ Medical inflation rate: Approximately 12.5% in 2008. The GCC ƒ As most expatriates are not covered by the state (other than the ƒ New legislation (effective January 1, 2009) requires all employers
region has experienced double-digit inflation in the past few limited medical card program for residents), most employers in Dubai to make a contribution (AED 500 to AED 900 per
years, resulting in a higher cost of living and increasing health provide supplementary private medical insurance plans. employee, per year) to a basic health contribution plan for
care costs and premiums. ƒ Due to higher inflation rates, companies are starting to look more employees only.
at noncash compensation such as medical and retirement plans. ƒ The Dubai health contribution plan is still in its infancy and not yet
fully implemented. The Dubai Health Authority (DHA) will require
employer contributions to be paid into a fund called the Central
Clearing House, but it is still unclear how and when these
contributions will be collected.
ƒ The scope of benefits provided under this new legislation is also
still awaited.

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

Austria Author: Andrea.Ofner@mercer.com


Peer Reviewer: Michaela.Plank@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Social security (retirement benefit is earnings-related but covered PLAN NAME Old-age pension under new Allgemeine Pensionsgesetz (APG) for
Practice earnings are capped at a salary ceiling) for insured persons born insured persons born after January 1, 1955 + new mandatory
before January 1, 1955 + mandatory termination indemnity (old termination indemnity (new system is DC and applies to all new
system is DB). employment as of January 1, 2003).
Typical Market Approximate: All employees after a minimum service period of one to 10 years PLAN ELIGIBILITY All employees after one year of service (with vesting over a further
Practice % of multinational (and minimum-age waiting period). Maximum waiting period for DB four years). For DC plans (normally funded by pension fund) the
plans (funded by book reserves) is 10 years. maximum waiting period is five years.
and local leading
companies with a 65 males/65 females. NORMAL RET. AGE 65 males/65 females. For more flexibility, trend is to fix the
supplementary plan retirement age in the pension fund contract at age 55 (and at the
17% cessation of employment contract – which means an employee will
be able to receive occupational pension at age 55 or later in case of
finishing the employment contract).
% of supplementary Equal to 2% of pensionable earnings per year of service (maximum BENEFIT FORMULA Accumulation of contributions with interest.
plans pension of 80% of final salary, including benefit from social security).
DB: 20% Pension accrual rates/contribution rates are lower below the ceiling
and higher above the ceiling.
DC: 70%
Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
Hybrid: 10%
Vesting benefit: Defined by law. The accrued pension rights vary by VESTING Vesting of employer contributions: Defined by law. The accrued
plan financing method. pension rights vary by plan financing method.
Executive-only
Not required. None. EMPLOYEE Not required. Voluntary contributions are possible (within a pension
plans
CONTRIBUTION fund solution). Employee contributions must not exceed employer’s
Fairly common; contribution.
Supplementary DB
plan for executives is Full cost of plan. EMPLOYER Typically 1% – 2% of earnings up to the social security ceiling and
becoming common CONTRIBUTION 10% – 15% above the ceiling.
Book reserve, insurance policy, multi-employer pension fund. FINANCING Book reserve, insurance policy, multi-employer pension fund.
Book reserve and insurance policy: Lump sum is preferred due to tax FORM OF PAYMENT Book reserve: Lump sum is preferred due to tax advantages.
advantages. Pension fund: Must be paid as annuity (paid 14 times a Pension fund: Must be paid as annuity (paid 14 times a year).
year).
DB plan for existing employees and DC plan for new hires (if HYBRID ALTERNATIVES DB plan for existing employees and DC plan for new hires (if
company transfers the DB plan to an external pension fund). company transfers the DB plan to an external pension fund).
Valuations: Annually. OTHER Employee investment choice: No choice except in life-cycle model
Local accounting standard: Austrian Commercial Law, IAS. (employee has the choice between three different investment
strategies) – offered by five multi-employer pension funds.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Social security NRA will increase from age 56.5 to age 60 for ƒ A task force has been formed to improve retirement benefits for
females over the period until 2018 (for those born in 1957). current beneficiaries as well as prospective beneficiaries of multi-
Starting in 2024, the normal retirement age for females will be employer pension funds and company collective insurance
increased by six months per year, reaching age 65 by 2034. vehicles. In autumn 2009 the National Council must adjudicate
upon the suggested legislation.

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

Austria Author: Andrea.Ofner@mercer.com


Peer Reviewer: Michaela.Plank@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security – Sickness funds: These ƒ Benefits Provided by Social Security: Long-term disability (LTD) ƒ Benefits Provided by Social Security: Death – natural causes,
funds cover treatment normally provided by doctors, hospitals and short-term disability (STD). STD benefit equals 50% of death – accidental causes, death of spouse, work-related
(general ward accommodation) and dentists under contract to the earnings (capped at EUR 56,280 in 2009) and increases to 60% benefits.
funds, with unlimited duration. Employees have to pay a daily fee after the 43rd day. Amount may further increase to 75% of ƒ Plan Eligibility: All employees.
for inpatient hospital treatment. Medical treatment is basically earnings, depending on family composition.
ƒ Plan Financing: Contributions to social security.
given as a benefit in kind (that is, the doctors’ fees – insofar as ƒ Benefits Provided by Employer: Work-related sickness benefits
they are under contract – are paid by the health insurance ƒ How Adequate Are Mandatory Benefits in Meeting Employee
include sickness benefits and disability benefits. Disability
institutions). Needs? Very adequate.
pension amount will vary depending on assessed disability level
ƒ Plan Eligibility: All employees are covered under one of the and extent of reduced ability to work caused by an accident at
government-approved sickness funds. work or occupational disease. An allowance of 50% of the
ƒ Plan Financing: Contributions to social security. disabled person’s pension is also payable to the caretaker (if
ƒ How Adequate Are Mandatory Benefits in Meeting Employee any).
Needs? Basic quality level. ƒ Plan Eligibility: All employees.
ƒ Plan Financing: Contributions to social security; mandatory
employee coverage for sickness benefits.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Adequate for lower-paid employees.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Long-term disability (LTD), sickness benefits. ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: Only a few companies provide supplementary health ƒ Prevalence: LTD – Mostly included in the pension plan; ƒ Prevalence: Death – 20% of companies. AD&D – About 25%.
benefits for all employees. It is more market practice (30% of disability prevalence is the same as pension. Sickness benefit: Widow’s pension: Same prevalence as pension.
companies) to provide supplementary medical benefits for Not available. ƒ Plan Eligibility: Death – All employees covered under retirement
executives. ƒ Plan Eligibility: LTD – All employees who are covered under plan. AD&D – All employees and executives.
ƒ Plan Eligibility: Executives and expatriates only. retirement plan. Sickness benefits: Supplemental coverage ƒ Benefit Description: Death – natural causes: Lump sum of two or
ƒ Dependent Coverage: Yes. provided to management. three times annual salary. Supplemental pension plans usually
ƒ Benefits Provided: Outpatient services, hospitalization, ƒ Benefit Description: LTD – 60% to 100% of the prospective provide a widow’s pension of 60% (plus orphan’s pensions of
ambulance services. Dental coverage is unusual. retirement pension for employees with a minimum service of 10% to 20%) of the deceased’s actual or expected pension.
five to 10 years. Sickness benefits: Supplement statutory Supplementary group accident insurance for managers and
ƒ Employee Contributions: None for employee. None for
dependent coverage. requirement to 100% of salary. sales: Most of the contracts provide two times annual salary in
ƒ Employee Contributions: None. case of death and four times annual salary in case of disability.
ƒ Plan Financing: Insurance policy.
ƒ Plan Financing: LTD – Included in the reinsurance or pension ƒ Employee Contributions: None.
ƒ Is Coverage Part of Another Plan? No.
fund solution with voluntary employee contributions. Sickness ƒ Plan Financing: Insurance policy most often (sometimes covered
benefit: Self-insured. through the retirement plan).
ƒ Is Coverage Part of Another Plan? LTD – Part of pension plan. ƒ Is the Coverage Part of Another Plan? Yes, some parts (widower
pensions) are covered under the retirement plan.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ 2008 medical inflation of 3.3%. ƒ Flexible benefits are becoming common practice in Austria;
however, favorable legislative regulations are still missing.
ƒ Both government and private insurers have been focusing on
preventive care and promoting good health.

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

Belgium Author: Thierry.Laloux@mercer.com


Peer Reviewer: Thiery.Billiet@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Social security (DB). PLAN NAME All members receive DB only.
Practice
Typical Market Approximate: Generally restricted to white-collar employees. PLAN ELIGIBILITY White-collar employees. Separate plans for blue-collar employees
Practice are becoming more widespread (industrywide pension plans).
% of multinational
and local leading Age 65 (75% of plans) or 60 (25% of plans) – no distinction between NORMAL RET. AGE Age 65 (87% of plans) or 60 (13% of plans) – no distinction between
companies with a males and females. males and females.
supplementary plan
Typical plan with NRA of 65: (225% S1 + 840% S2) times n/40, BENEFIT FORMULA Accumulation of contributions with interest; with a minimum return of
95% where S1 = pensionable salary up to the social security ceiling, S2 = 3.75% on employee contributions and 3.25% on employer
pensionable salary above the social security ceiling, and n = contributions.
pensionable service. Global target (inclusive of social security
% of benefit) is 60% to 66% last salary.
supplementary
plans Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
DB: 58% Vesting benefit: Immediate full vesting. New trend: Vesting after one- VESTING Vesting of employer contributions: Immediate full vesting. New
year membership. trend: Vesting after one-year membership.
DC: 38%; greater
penetration of DC About 70% of the plans are contributory. Typical contribution is 1% EMPLOYEE About 75% of the plans are contributory. Typical contribution is 1%
plan among S1 + 5% S2. CONTRIBUTION S1 + 4% S2.
small/midsize Balance of the cost. EMPLOYER Typical contribution is 3% S1 + 8% S2 (plus death and disability
companies CONTRIBUTION premiums).
Hybrid: 4% (means Group insurance (most common) or pension fund (generally among FINANCING Group insurance (most common) or pension fund (in a few cases).
company offers both largest groups).
DB plan and DC
plan, though there Lump sum (possibility to require conversion into an annuity). FORM OF PAYMENT Lump sum (possibility to require conversion into an annuity).
are very few DC Not prevalent. HYBRID ALTERNATIVES Very few cash balance plans.
plans with minimum
benefits at NRA) Valuations: Annually. OTHER Employee investment choice: Legally authorized but not advisable.
Local accounting standard: Belgian GAAP. The law requires the employer to provide a minimum guaranteed
return on employee contribution paid on or after January 1, 1996
Executive-only (3.75% as of July 1, 2009), and on employer contribution paid on or
plans after January 1, 2004 (3.25% as of July 1, 2009).
Not prevalent
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ There is an upper limit on benefits financed by tax-deductible ƒ DB plans tend to be closed to new entrants (to a lesser extent in ƒ The law transposing the EU Directive 2003/41/CE on cross-
contributions. respect of future service) and replaced by DC plans. border pension (IORP Directive) was published in the official
ƒ DB plan amendments are allowed for future service only (when ƒ The Law on Supplementary Pension of April 28, 2003, introduced gazette November 10, 2006. Belgium decided to go further than
transposition by creating a new framework for pension funds
moving from DB to DC, the DB plan needs to be maintained and the possibility of cash balance plans.
(Institution de Retraite Professionnelle, or IRP), with the objective
updated in respect of service prior to plan amendment). ƒ Industrywide pension plans (for blue-collar employees) are of attracting European pension funds to Belgium.
ƒ Guaranteed return imposed on DC plans at a rate that is becoming more widespread, generally set under the form of
ƒ The law includes prudential reserves provisions to be applied for
currently very similar to the tariff rate guaranteed by insurance defined contribution plans funded by employer contribution (0.5%
the first time as part of the year-end 2008 pension fund accounts.
companies. to 1.0% of pensionable salary).

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
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

Belgium Author: Ronald.Juste@mercer.com


Peer Reviewer: Karine.Wettinck@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security Through Mutuelles: ƒ Benefits Provided by Social Security: Long-term disability (LTD; ƒ Benefits Provided by Social Security: Death of any cause –
Outpatient services, hospitalization, ambulance services, dental, illness or private accident) or short-term disability (STD; illness or Spouse pension (severe eligibility conditions); flat rate of family
vision. private accident). Benefits are paid after 30 days of absence. For allowance per dependent child.
the next 11 months of disability, pension is paid at 55% or 60% of
ƒ Benefits Provided by Employer Through Insurers (compulsory): annual salary, up to a ceiling. ƒ Benefits Provided by Employer: Occupational accident insurance
Occupational accident insurance. – Spouse pension equal to 30% of the deceased’s covered
ƒ Benefits Provided by Employer: Employer is required to pay
ƒ Plan Eligibility: All employees and pensioners. earnings (up to a ceiling); orphans receive half of this pension.
100% of salary for first 30 days (illness or accident). Disability
pension (only for occupational accident) equal to 90% of salary, ƒ Plan Eligibility: All employees.
ƒ Plan Financing: Contributions to mutuelle and insurer of
occupational accident risk. up to a ceiling, is paid until age 65. ƒ Plan Financing: Contributions to social security and insurer of
ƒ Plan Eligibility: All employees. occupational accident risk.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Basic needs related to outpatient treatment and to ƒ Plan Financing: Contributions to social security, plus employer ƒ How Adequate Are Mandatory Benefits in Meeting Employee
hospitalization (ward level) are met. takes out insurance for work-related disability. Needs? If conditions for spouse pension are met, basic coverage
ƒ How Adequate Are Mandatory Benefits in Meeting Employee for lower-paid employees; inadequate for staff and management.
Needs? Basic coverage for lower-paid employees; inadequate for
staff and management.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD), long-term disability ƒ Plans: Death and accidental death & dismemberment (AD&D).
(LTD) and short-term disability (STD).
ƒ Prevalence: 93% of multinational and local leading companies. ƒ Prevalence: Death for 87% and AD&D for 52% of multinational
ƒ Prevalence: STD and LTD – 87% of multinational and local
and local leading companies.
ƒ Plan Eligibility: Generally one plan for all employees; sometimes leading companies; one-third have extra coverage for TPD.
executives are covered by a separate plan. ƒ Plan Eligibility: All employees. ƒ Plan Eligibility: All employees.
ƒ Dependent Coverage: Yes, optional (40% of plans) or ƒ Benefit Description: STD – Combines salary continuation with ƒ Benefit Description: Death – natural causes: Typical benefits are
compulsory (60% of plans). disability insurance (LTD benefit level). LTD – Salary continuation one to three times annual salary, with an additional 25% to 50%
ƒ Benefit Description: Most insurance companies adopt an agreed- at 70% of predisability earnings (integrated with state benefit), per dependent child (orphans’ pensions are also common for
capped and payable after waiting period of one to three months, social reasons). Death – accidental causes: Lump sum of two to
upon standard design. Occupational medical plans commonly
reimburse for hospitalization, including pre- and post-ambulatory annually increased by 2% to 3%. TPD (due to accident) – Lump six times the covered earnings (occupational accident – salary
sum of four to eight times annual covered earnings (occupational above ceiling; nonoccupational accident – full salary).
treatments, and cost of outpatient treatment for critical illnesses.
Optical, dental and general outpatient care not typically provided. accident – salary above ceiling; nonoccupational – full salary); ƒ Employee Contributions: None.
pro rata coverage for partial disablement.
ƒ Employee Contributions: Typically required for dependent ƒ Employee Contributions: None. ƒ Plan Financing: Insurance policy.
coverage (when dependent coverage is optional).
ƒ Plan Financing: Insurance policy. ƒ Is Coverage Part of Another Plan? Death – Basic death coverage
ƒ Plan Financing: Insurance policy. ƒ Is Coverage Part of Another Plan? May be provided as part of may be provided as part of the retirement plan. AD&D – Typically
ƒ Is Coverage Part of Another Plan? No. the retirement plan. a separate policy.

MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT


Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate (2008): 5.5%. High due to population aging. ƒ The number of employers that provide internal salary ƒ The Law Verwilghen, which came into force for new plans July 1,
Increase of premiums for elders (pensioners). continuation in case of STD is decreasing. 2007 (July 2009 for all existing plans), has had an important
ƒ Anti-discrimination legislation makes it more difficult to provide ƒ Due to increasing costs, more medical plans require an impact on sickness, disability and medical plans; employer has to
inform employee about continuity of protection when collective
different benefits to different categories of employees. employee contribution.
insurance stops. The employer also has to inform the employees
ƒ Number of insurers willing to offer medical plans decreases about the possibilities of pre-financing the individual continuation.
(consolidation).

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. 81
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

Denmark Author: Hanne.Jermiin.Johansen@mercer.com


Peer Reviewer: Nikolaj.Brylle@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies National State Pension + ATP (Labor Market Supplementary PLAN NAME All members receive DB only.
Practice Pension) + SP (special savings plan). SP has been suspended since
2004, and the saved amount can now be paid out at a favorable
taxation.
Typical Market Approximate: Not prevalent. PLAN ELIGIBILITY All employees. Typically either immediately or after three months of
Practice % of multinational service.
and local leading NORMAL RET. AGE 65 males/65 females.
companies with a
BENEFIT FORMULA Accumulation of contributions with interest.
supplementary plan
98% DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
VESTING Vesting of employer contribution: Immediate full vesting.

% 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)
ƒ The yield on investments has been falling over the years and ƒ New investment products are being developed both for the ƒ 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 ƒ 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 ƒ 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 ƒ 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. ƒ 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
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

Denmark Author: Hanne.Jermiin.Johansen@mercer.com


Peer Reviewer: Nikolaj.Brylle@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Examination and treatment ƒ Benefits Provided by Social Security: Short-term disability (STD), ƒ Benefits Provided by Mandatory Plan for Employees: Lump sum
by doctor, hospitalization, ambulance services, dental long-term disability (LTD) benefits payment. of DKK 50,000 for death (all causes) before age 65.
reimbursement. ƒ Plan Eligibility: STD – All employees. LTD – All employees ages ƒ Plan Eligibility: Employees between ages 16 and 66 who work a
ƒ Plan Eligibility: EU nationals/permanent residents of Denmark; 18 – 65. minimum of nine hours per week with the same employer.
temporary residents after six weeks.
ƒ Plan Financing: STD – First two weeks paid by employer; after ƒ Plan Financing: Monthly payment from both employees and
ƒ Plan Financing: Part of the general income tax. this period, benefit is paid by sickness funds, which are funded employers.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee as part of the general income tax. LTD – Part of the general ƒ How Adequate Are Mandatory Benefits in Meeting Employee
income tax.
Needs? Adequate, but long waiting lists are typical; employers Needs? Very inadequate.
want quick access to treatment for their employees. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Inadequate.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Long-term disability (LTD). ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: Around 50% of multinational and local leading ƒ Prevalence: 98% of multinational and local companies. ƒ Prevalence: Death for 98% and AD&D for around 65% of
companies. ƒ Plan Eligibility: All employees. multinational and local companies.
ƒ Plan Eligibility: One plan covering all employees. ƒ Benefit Description: Base cover of 30% – 50% of salary with the ƒ Plan Eligibility: Death – Participants in pension plan. AD&D – All
employees.
ƒ Dependent Coverage: Not included but can often be purchased option of increasing the benefit to 80%.
separately. ƒ Benefit Description: Death (all causes) – Either as group life
ƒ Employee Contributions: Part of the pension plan.
ƒ Benefit Description: Examination and treatment at private clinics insurance or as life coverage under the pension plan. Typically a
ƒ Plan Financing: Included in pension plan. lump sum of one times annual salary (pension plan), with the
and private hospitals.
ƒ Is Coverage Part of Another Plan? Yes, part of pension plan. option of additional coverage up to eight times the annual salary
ƒ Employee Contributions: Varies. Depends on the plan – a simple or a fixed typical amount of DKK 404,000 (group life insurance).
plan is cheap, and an extended plan is more costly. AD&D – Death, dismemberment and dental accidental causes.
ƒ Plan Financing: Insurance policy. Tax-free benefit is set to lump sum of DKK 500,000 at plan
inception; most plans have this coverage, however, the benefit is
ƒ Is Coverage Part of Another Plan? No. still considered tax-free if the amount is indexed each year.
ƒ Employee Contributions: Death – Part of the pension
contribution. AD&D – None.
ƒ Plan Financing: Death – Either part of the pension contribution or
insurance policy. AD&D – Insurance policy.
ƒ Is Coverage Part of Another Plan? Death – Yes, part of pension
plan. AD&D – No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Public debate of the polarization of the citizens – those with and ƒ New hybrid preventive medical plans. ƒ Long-term social security disability benefits are subject to income
those without private medical insurance. tests.
ƒ New hospital reform has had no impact on employers so far.

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
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

Finland Author: Calle.Eklund@mercer.com


Peer Reviewer: Kukka.Havas@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies National Pension Plan + mandatory Employees’ Pensions Act PLAN NAME All members receive DB only.
Practice (TyEL).
Typical Market Approximate: Executives and employees in key positions. Typically no minimum PLAN ELIGIBILITY Executives and employees in key positions. Typically no minimum
Practice service requirement to join the plan. service requirement to join the plan.
% of multinational
and local leading 60 – 65 males/60 – 65 females. NORMAL RET. AGE 55 – 63 males/55 – 63 females.
companies with a
1.5% times earnings times service from age 18 to age 53. BENEFIT FORMULA Accumulation of contributions with interest.
supplementary plan
1.9% times earnings times service after age 53.
45%
4.5% times earnings times service from age 63 to age 68.

% 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)
ƒ Trend toward closing DB plans and offering DC plans, as an ƒ 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
ƒ Supplementary plans (both DB and DC) are tax-effective. contracts. The benefits will remain as earlier.

ƒ DC plans with employee investment choice are a growing trend.


Earlier there was no possibility to choose investments
individually.

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

Finland Author: Calle.Eklund@mercer.com


Peer Reviewer: Kukka.Havas@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefit Provided by Social Security: Sickness insurance. ƒ Benefit Provided by Social Security: Sickness allowance. ƒ Benefits Provided by Social Security: Group life – Lump sum of
ƒ Benefit Provided by Mandatory Company Plan: Occupational ƒ Benefit Mandatory TyEL: Disability pension. EUR 15,380 up to age 49, decreasing to EUR 4,260 at 60 years.
preventive health care for employees. ƒ Plan Eligibility: All employees.
ƒ Benefits Provided: Sickness allowance after nine days’ waiting
ƒ Benefits Provided: 60% doctor’s fees; prescription drugs, 42% period. Disability pension is paid if ability to work has decreased ƒ Plan Financing: Contributions to National Pension Plan and
reimbursement; EUR 22 fee for first health care center visit; 75% by three-fifths, after one-year waiting period. TyEL.
of lab treatment over EUR 13.46 reimbursed.
ƒ Plan Eligibility: All Finnish employees. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Eligibility: All citizens; Residents of five years. Needs? The benefit level is quite low.
ƒ Plan Financing: Sickness allowance included in sickness
ƒ Plan Financing: Contributions to social security. insurance contribution. Disability pension is included in
ƒ How Adequate Are Mandatory Benefits in Meeting Employee mandatory TyEL contribution.
Needs? It covers basic needs and public treatment, but waiting ƒ How Adequate Are Mandatory Benefits in Meeting Employee
times for specialist care are long. Needs? In general, employees’ income is decreased by
approximately 50%.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD). ƒ Plans: Death.
ƒ Prevalence: Scope of mandatory occupational health care ƒ Prevalence: 25% of multinational and local leading companies. ƒ Prevalence: 40% (group life) of multinational and local leading
service is expanded for 90% of contracts; supplementary medical ƒ Plan Eligibility: Top management. companies. AD&D is not common.
coverage in 25% of companies.
ƒ Benefit Description: Lump sum of two to four times annual salary. ƒ Plan Eligibility: Management.
ƒ Plan Eligibility: All employees.
ƒ Employee Contributions: None. ƒ Benefit Description: Death (due to all causes) – Lump sum of two
ƒ Dependent Coverage: No. to four times annual salary.
ƒ Plan Financing: Insurance policy.
ƒ Benefits Descriptions: Supplement to occupational health care – ƒ Employee Contributions: None.
General practitioner treatment and tests in occupational health ƒ Is Coverage Part of Another Plan? No.
ƒ Plan Financing: Insurance policy.
care, prescription drugs. Supplementary medical coverage is
more commonly covering specialist treatments (allows ƒ Is Coverage Part of Another Plan? No.
employees to skip any waiting lines).
ƒ Employee Contributions: None.
ƒ Plan Financing: Contract with medical center.
ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Supplementary medical treatment as a complement to the public
health care system is a growing trend (increase of about 25%
annually).

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

France Author: Benoit.Dorin@mercer.com


Peer Reviewer: Cecile.Polte@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Social security + mandatory complementary plans (ARRCO and PLAN NAME
Practice AGIRC; classification of social security, ARRCO and AGIRC as DB
plans is not totally accurate, however, as they are state programs) +
mandatory termination indemnity.
Typical Market Approximate: Top executives, and sometimes extended to all or a specific group of PLAN ELIGIBILITY DC plan: Executives, and sometimes extended to all or a specific
Practice white-collar "cadres" (executives, managers, highly paid white-collar group of white-collar "cadres."
% of multinational
employees, etc.). PERCO savings scheme dedicated to retirement: If implemented by
and local leading
companies with a the company, it must be offered to all employees and negotiated with
supplementary plan employee representatives.
40% 60 – 65/males and females (discrimination forbidden). NORMAL RET. AGE 60 – 65/males and females (discrimination forbidden).
1.5% to 2% of final pay per year of service, limited to 35 years, BENEFIT FORMULA Accumulation of contributions with interest.
inclusive of state benefits (total target: 40% to 60% of last salary).
% of supplementary
Included in retirement plan: Death – Yes for death after retirement. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
plans
Disability – Yes.
DB only: 15% No vested benefits: Employee must retire when he or she leaves the VESTING Vesting of employer contributions: Immediate full vesting.
DC only: 45% company. No tax incentives for vested schemes.
Hybrid: 40% None. EMPLOYEE DC plan: The plan may provide an employee contribution that
CONTRIBUTION becomes mandatory (typically around 1% – 2% of the remuneration).
Hybrid means the
company has both PERCO: Voluntary contributions.
DB and DC Full cost of plan. EMPLOYER DC plan: Required if plan offered. Typically 2% – 3% of base salary.
CONTRIBUTION PERCO: Not mandatory, but employer may match the employee
contribution.
Executive-only Liability must be recognized in book reserves in company’s account. FINANCING DC plan: Insurance policy.
plans External funding through insurance plan is possible – no obligation, PERCO: Investment fund (for example, a bank).
Majority of plans for but tax incentives exist for insurance policy.
management only or Annuity only. FORM OF PAYMENT DC plan: Annuity only (except lump sum for withdrawal cases
higher earners provided by French law).
PERCO: Annuity or lump sum (if lump sum is provided by the plan),
and lump sum in early-withdrawal cases provided by law.
Not prevalent. HYBRID ALTERNATIVES Very few DC plans with minimum benefits at retirement age.
Valuations: Annually. Local accounting standard: IAS 19. OTHER Employee investment choice: Such contracts exist, but investments
are organized per the age of each salary.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ DB plans cannot vest until retirement unless employees agree ƒ DB plans are closing in answer to IFRS and due to the new ƒ Tax regulations, in force from January 1, 2005, with a transitory
with the assimilation of the employer’s contribution to a salary. opportunity to offer DC plans for higher-salary executives. Use of period until December 31, 2008, open and simplify the use of DC
DB remains for specific cases. plans for employees who were earlier bound to seek DB plans.
ƒ The Fillon law (2003) encourages use of the new PERCO and Target: executives (salary between EUR 137,000 and EUR
PERE supplementary plans. The PERCO plan is a growing trend. 274,000).
PERE (individual, optional retirement plan for higher-paid ƒ New condition of retirement at the employer’s initiative, which
employees) is a DC plan that has not been widely used. should make it rare.

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
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

France Author: Sylviane.Le.Gall@mercer.com


Peer Reviewer: Benoit.Dorin@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Outpatient services, ƒ Benefits Provided by Social Security: STD benefits paid as daily ƒ Benefits Provided by Social Security: ARRCO and AGIRC
hospitalization, ambulance services, dental, vision, maternity, indemnities; LTD benefits paid as a pension until retirement age, mandatory pay-as-you-go retirement plans; mandatory employer-
medical spa cures. Collective bargaining agreements sometimes depending on the disability degree; total permanent disability sponsored plans for those exempt. All the above benefits are
include mandatory provisions regarding medical coverage. lump sum is often payable through the death coverage. paid in case of death from natural causes or resulting from an
ƒ Plan Eligibility: All employees. Collective bargaining agreements often include mandatory accident or an occupational illness.
provisions regarding LTD and STD coverage. ƒ Eligibility: All employees.
ƒ Plan Financing: Contributions to social security.
ƒ Plan Eligibility: All employees. ƒ Plan Financing: Contributions to social security.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Financing: Contributions to social security. How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Inadequate – not sufficient to cover real expenses. ƒ
ƒ How Adequate Are Mandatory Benefits in Meeting Employee Needs? Inadequate.
Needs? Inadequate.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Long-term disability (LTD) and short-term disability (STD). ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: 93% of multinational and local leading companies. ƒ Prevalence: LTD and STD – 85% of multinational and local ƒ Prevalence: 85% of multinational and local leading companies.
ƒ Plan Eligibility: Most often, all employees. Some companies leading companies. ƒ Plan Eligibility: Most often all employees. Some companies
distinguish executives and other employees. ƒ Plan Eligibility: Most often, all employees. Some companies distinguish executives from other employees.
distinguish executives from other employees.
ƒ Dependent Coverage: Yes. ƒ Benefit Description: Death – Natural causes, death of spouse
ƒ Benefit Description: Daily indemnities and disability pension and dependent: Benefit paid as a lump-sum equal to 200% –
ƒ Benefit Description: Covers expenses not reimbursed by social
security related to outpatient services, hospitalization, ambulance equal 80% of gross income, including social security benefits 400% of gross salary plus 60% – 100% of salary per additional
subject to a waiting period of 30 to 120 days. child. AD&D – Payment of supplementary lump sum from 50% –
services, dental, vision, maternity and spa cures agreed by social
100% of death benefits. Educational annuity of 12% is typically
security. ƒ Employee Contributions: 20% – 40% of premium.
also included.
ƒ Employee Contributions: Generally 50% of total costs. ƒ Plan Financing: Insurance policy.
ƒ Employee Contributions: 20% – 40% of premium.
ƒ Plan Financing: Insurance policy. ƒ Is Coverage Part of Another Plan? LTD and STD – Usually as
ƒ Plan Financing: Fully insured policy.
riders to life and AD&D insurance contracts.
ƒ Is Coverage Part of Another Plan? No.
ƒ Is Coverage Part of Another Plan? Death – No. AD&D – Yes, as
a rider to life insurance policy.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ For many years, medical contribution rates have increased ƒ Pursuant to recent major social security reform, French social ƒ As of January 1, 2009, only compulsory group medical, disability
significantly. security reimbursements will be the lowest for some medical and life plans will be exempt from social charges income tax.
ƒ Any change in death, disability and/or medical coverages expenses. Consequently, there will be a transfer of medical ƒ A new circular published by Social Administration in January
charges to providers of medical contracts. Companies will need
requires communication with employee representatives and 2009 has clarified the Fillon law and has introduced new
to monitor their plans and negotiations with insurers to minimize
negotiations with trade unions. provisions; some companies will have to amend their plans and
premium rate increases. related written information by December 31, 2009, to continue
benefiting from social charges exemption.

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

Germany Author: Stefan.Oecking@mercer.com


Peer Reviewer: Thomas.Hagemann@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Social Security retirement insurance. PLAN NAME All members receive DB only.
Practice
Typical Market Approximate: All full- and part-time employees, usually upon date of hire. PLAN ELIGIBILITY All full- and part-time employees, usually upon date of hire.
Practice 65 males/65 females (tending toward 67 for new hires; see below). NORMAL RET. AGE 65 males/65 females (tending toward 67 for new hires, see below).
% of multinational
and local leading 0.2% to 0.5% of salary below social security contribution ceiling BENEFIT FORMULA DC plans effectively are only possible as fully insured plans where
companies with a (EUR 64,800 for the western federal states and EUR 54,600 for the premium determines insured benefit; premium typically equals 2% to
supplementary plan eastern federal states) plus 0.9% to 1.8% of salary above the ceiling, 4% of covered pay, up to social security contribution ceiling (SSCC;
90% multiplied by the number of service years (on either a final-pay or a EUR 64,800 for the western federal states and EUR 54,600 for the
career-average basis). eastern federal states). Most plans are hybrid plans.
Included in retirement plan: Death – Yes. Survivors’ benefit is 60% of DEATH & DISABILITY Included in retirement plan: Death – Yes. Survivors’ benefit typically
% of supplementary disability or old-age benefit. Disability – Yes (accrued old-age is 60% of disability or old-age benefit. Cash balance: Payment of
plans benefit). (notional) account. Disability – Often, accrued old-age benefit.
DB: 50% Vesting benefit: Five years of service + age 25. VESTING Vesting of employer contributions: Five years of service + age 25.
Vesting for employee contributions: Immediately.
DC: 10%
Not required, and unusual. EMPLOYEE Not required, but varies by plan. Often requested within new plans,
Hybrid: 40% CONTRIBUTION with employer matching contribution. Deferred compensation
common for executives; offer mandatory for all employees, up to a
contribution of 4% of the SSCC.
Executive-only
plans Full cost of plan. EMPLOYER General plan arrangements: 1.5% to 4.0% of salary below SSCC
CONTRIBUTION salary ceiling and 6.0% to 15.0% above ceiling; executives even
Common more. Deferred compensation plans: Individual contributions.
Most popular method is a book reserve with or without segregated FINANCING Either insured, external entity (direct insurance, Pensionskassen,
assets in contractual trust arrangements. Other methods: Support Pensionsfonds or support fund) or book reserved; some employers
funds, pension funds (“Pensionskassen”) and direct insurance. fund their book reserve plan via reinsurance or CTA.
Annuity (predominant) or lump sum; combination of annuity/lump FORM OF PAYMENT Predominantly lump sum or annuity, though combination is possible.
sum is not uncommon.
Reinsured DB plan with defined contributions; level of benefits HYBRID ALTERNATIVES Only some insured plans are fully DC from the accounting
depends on the insurance benefits. perspective; all others are hybrid plans.
Valuations: Annually. Local accounting standard: German OTHER Valuations according to IAS 19 are often necessary.
Commercial Code (CC) but compliance with CC by using tax law Employee investment choice: Yes, but only in rare cases.
standards (Teilwert-Methode). Trend is to move to IFRS.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ A pure DC plan is still not possible (since the ƒ Strong tendency to change from DB plans to DC-type hybrid plans (virtually ƒ Social security NRA will increase gradually from age 65 to age 67
employer always retains parts of the investment risk); all new plans are of this type). Many DB plans are closed to new hires. between 2012 and 2029.
fully insured plans (and plans with Pensionskassen ƒ Harmonization of pension plans currently involves conversion of past service ƒ BilMoG (German Accounting Law Modernization Act) makes
and Pensionsfonds) are still tax-inefficient for from different pension plans into an initial building block in a cash balance- particular pension accruals more “realistic” by considering future
contributions in excess of 4% of pay, up to social type hybrid plan; for future service, there is only one valid cash balance-type developments of wages, prices and discount rates more in line
security ceiling (any excess is fully taxable as hybrid plan. with capital market developments. The tax valuation of pension
income). accruals remains unchanged.
ƒ Ongoing trend toward transferring a pension plan from book reserve to
Contractual Trust Arrangement (and increasingly to Pensionsfonds). ƒ The reform of pension rights adjustment will influence employers,
ƒ Employment after normal retirement age 65 will be taken into account by which will have to share the company pension rights adjustment
bonuses. Pensions (if drawn later) will be increased. that the employee earned during the relationship. The new law
will take effect September 1, 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

Germany Author: Michael.Braun@mercer.com


Peer Reviewers: Marin.mcu.Cubric@mercer.com; Stefan.Oecking@mercer.com
Medical and Sickness Benefits (see Retirement page for Disability & Death)
EMPLOYER PRACTICE
Prevalence Health Insurance Compulsory Long-term Care Insurance
Mandatory All companies Compulsory health insurance. Compulsory long-term care insurance.
Practice
Typical Market Approximate: All full- and part-time employees, except those with higher incomes PLAN ELIGIBILITY All full- and part-time employees, usually commencing at the date of hire.
Practice % of German who have opted out, are covered (usually as of date of hire).
employees are in a Premium of compulsory health insurance amounts to 15.5% of the SOCIAL SYSTEM Premium of compulsory long-term care insurance amounts to 1.95% of
social sickness income, up to the SSCC in the compulsory health insurance (2009: the income, up to the SSCC in the compulsory health insurance. 50.00%
fund EUR 44,100). 50.0% paid by the employer and 50.0% paid by the paid by the employer and 50.00% paid by the employee. For members
90% (basic health employee + 0.9% extra premium (paid only by the employee) for without children there is an extra premium of 0.25% (paid only by the
coverage) dental prosthesis. Dependents are covered without additional employee).
premiums. The statutory health insurance generally covers all
hospitalization and medical costs. Patients have to consult with a
% of German general practitioner before seeing a specialist; no additional costs will
employees are be incurred for further consultations if this is respected.
private health Employees with income above EUR 48,600 in 2009; EUR 48,150 in PRIVATE SYSTEM Premium of private, long-term care insurance is calculated on an average
insured 2008; and EUR 47,700 in 2007 (three consecutive years) are able to premium basis for private insured and is limited to 1.95% of the income
10% (upgraded opt out of the social health system and obtain private insurance that up to the SSCC in the compulsory health insurance.
health coverage, only provides full medical coverage. In this case, premium is individually 50% paid by the employer and 50% paid by the employee.
possible for calculated and is independent of income. Employer pays 50.0% of the
employees with an premium to compulsory health insurance (15.5% from July 1, 2009, up
income over the to the SSCC). In addition, premiums have to be paid for dependents’
SSCC) cover; premium level depends on the age and sex of dependents.
Paid out by the employer until retirement age; employee’s share as CONTRIBUTIONS Paid out by the employer until retirement age; employee’s share as
described above. described above.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Health coverage will become a new type of employee benefit other than ƒ Health reform currently under way, with second step effective January
retirement arrangements, as employers begin providing additional 1, 2009:
health benefits to cover decreasing benefits of the compulsory - Every individual residing in Germany is obligated to have health
insurance or to improve them. insurance for himself/herself and his/her legal dependents. The
- 90% of multinationals and local leading companies already offer a health insurance must be contracted with an insurance company
supplementary group medical plan for all employees who are certified to do business in Germany.
members of compulsory health insurance. However, there is a low - One compulsory health insurance contribution rate will be defined
take-up rate, as employees must assume the full premium. for all insurance funds by the Federal Ministry of Health
Participation rates may increase following decreasing compulsory (previously, rates were set by the funds themselves and varied by
insurance coverage. fund).
- Employer-sponsored plans also allow for preferred conditions over - New basic tariff in private health insurance, with the same
voluntary health group contracts. premiums and benefits as the compulsory insurance.
ƒ Some employers have begun introducing employer-paid additional long- ƒ Reform of long-term care insurance was announced in 2008:
term care insurance. - As of July 1, 2008, the mandatory contribution is 1.95% of
ƒ Trend toward workforce health management. One of the reasons is that income, up to the SSCC, plus an extra premium of 0.25% for
government and sickness funds offer tax and other financial benefits for members without children (paid only by the employee).
employers and employees. - The benefits will increase in phases between 2008 and 2012.
Coverage will be provided for individuals with limited capabilities in terms
of activities of daily living.
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. 89
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

Ireland Author: Aisling.Kennedy@mercer.com


Peer Reviewer: Raymonde.Kelly@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Pay-Related Social Insurance (PRSI) to provide a state pension from PLAN NAME Pay-Related Social Insurance (PRSI) to provide a state pension from
Practice age 65. age 65. For employees not eligible to join a company plan, the employer
must facilitate, but not necessarily contribute to, a Personal Retirement
Savings Account (PRSA).
Typical Market Approximate: All employees (most plans), commonly at age 21 or 25. Minimum service PLAN ELIGIBILITY All employees (most plans), commonly at age 21 or 25. Minimum service
Practice % of multinational requirement or probation period is often but not invariably required. requirement or probation period is often but not invariably required.
and local leading 65 males/65 females, although in practice many employees retire earlier. NORMAL RET. 65 males/65 females, although in practice employees can access
companies with a Senior executives often at age 60 (male/female). AGE retirement fund earlier (earliest is age 50).
supplementary plan Two-thirds of final pensionable salary after 40 years’ service – that is, an BENEFIT Accumulation of contributions with interest.
100% accrual rate of 1/60th of final pensionable salary for each year of service. FORMULA
Included in retirement plan: Death – Yes. Disability – No. Separate DEATH & Included in retirement plan: Death – Yes. Disability – No. Separate
% of supplementary arrangement always. DISABILITY arrangement always.
plans Vesting benefit: Generally after two years in the plan, with a refund of VESTING Vesting of employer contributions: After two years of service, although
DB only: 36% member’s contributions (with or without interest) being paid if employee some plans provide immediate vesting.
DC only: 24% withdraws before this time.
DB & DC: 36%* Approximately 80% of plans have employee contributions. Typical is EMPLOYEE Required in majority of plans. Between 2% and 6% (average 4.6%) of
5.5% of covered pay. Generous age-related revenue limits permit CONTRIBUTION covered pay. Generous age-related revenue limits permit additional
Hybrid: 4%**
additional voluntary contributions, generally on a DC basis. voluntary contributions.
* Typical DB for
Usually balance of cost. EMPLOYER Between 4% and 12.5% (average 7.2%) of covered pay. PRSA:
existing employees,
CONTRIBUTION Employer contribution is possible but not typical.
DC for new hires
Trusts, using an external investment manager or pooled funds provided FINANCING Trusts, using pooled funds provided by external investment manager or
** Some benefits
by investment managers/insurers. insurance company. PRSA option also.
based on DB,
remainder on DC Combination of annuity plus tax-free lump sum. FORM OF Combination of annuity plus tax-free lump sum.
basis PAYMENT
Not prevalent but is becoming the alternative for new employers. HYBRID Not prevalent but is becoming the alternative for new employers where a
Executive-only ALTERNATIVES DB scheme was in place before.
plans: Fairly Valuations: Every three years, with an annual requirement to certify OTHER Employee investment choice: Yes, usually but not invariably from a
common, but not solvency on minimum statutory basis. Local accounting standard: FRS specified range of funds.
universal 17/IAS 19.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Stringent solvency requirements and onerous compliance ƒ Greater transparency of risks relative to financial accounting ƒ The government is to publish a framework on pension policy in
burdens for DB plans. reporting. 2009. The 2008 Commission on Taxation will also issue its report
ƒ A significant number of DB plans in Ireland are currently under- ƒ Of existing DB plans, 65% are closed to new members. Few in 2009 (regarding overlapping pension issues).
funded on the minimum funding standard (MFS), and it is this companies are closing their plans entirely to existing members, ƒ Disclosure regulations provide that from July 1, 2009, annual
MFS requirement that is driving funding. The number of plans however. Due to funding issues, plans are now considering benefit statements must contain a Statement of Reasonable
that fail the statutory MFS has increased significantly as a result longer MFS recovery plans and scheme benefit restructuring. Projection of DC members’ benefits.
of negative investment returns and low interest rates. ƒ In the financial services sector, an increased number of ƒ Extension of Pension Board’s powers to allow longer periods for
ƒ Significant contributions are likely to be required because of the employers have introduced DB/DC hybrid plans for new hires. MFS recovery plans.
combined effect of the MFS requirements, increased longevity, Employer and employee contribution rates increased in 2009. ƒ Social Welfare and Pensions Act 2009.
poor investment returns and low interest rates. ƒ Investment in bonds is increasing. Range of investment solutions
is broadening. International investment managers are becoming
more accessible.
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. 90
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

Ireland Author: Kevin.Kinsella@mercer.com


Medical, Sickness, Disability & Death Benefits Peer Reviewer: Raymonde.Kelly@mercer.com
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: (1) Medical cardholders ƒ Benefits Provided by Social Security: (1) Illness benefit; (2) ƒ Benefits Provided by Social Security: (1) Widows’/ widowers’
(means-tested) – Doctor’s consultation fees, dental, medicines, Disablement benefit; (3) Invalidity pension; (4) Disability contributory & noncontributory allowance/ pension; (2) Death
maternity, inpatient public hospital services and outpatient allowance (means-tested). benefit; (3) Bereavement grant; (4) Widowed parent grant.
services. (2) Non-cardholders – Free public hospital services ƒ Plan Eligibility: (1) Insured persons under age 66 with certain ƒ Plan Eligibility: (1) Contributory benefit paid if meets contribution
(inpatient and outpatient hospital services are charged a fee-per- amount of contributions paid; (2) Specified social insurance requirements, noncontributory is means-tested; (2) Specified
night amount); medicines, maternity, infant care are subsidized. class; (3) Certain amount of PRSI contributions paid and medical; social insurance class; (3) Based on PRSI contributions paid; (4)
ƒ Plan Eligibility: All persons between ages 16 and 66. (4) Means-tested and medical. Payable if receiving other widows’/widowers’ contributory benefit.
ƒ Plan Financing: Contributions to social security and health ƒ Plan Financing: Contributions to social security. ƒ Plan Financing: Contributions to social security.
insurance. ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ How Adequate Are Mandatory Benefits in Meeting Employee Needs? Approximately 30% of average industrial wage. Needs? Inadequate.
Needs? Inadequate.
Typical Typical Typical
ƒ Plans: (1) Health, (2) Dental, (3) Cash plan. ƒ Plans: Long-term disability (LTD) and short-term disability (STD). ƒ Plans: Death.
ƒ Prevalence: Health for 90%, dental for 10%, cash plan for 11% of
ƒ Prevalence: LTD for 95% and STD for 100% of multinational and ƒ Prevalence: 100% of multinational and local leading companies.
multinational and local leading companies. local leading companies. ƒ Plan Eligibility: All (including contract) employees.
ƒ Plan Eligibility: One plan for all employees. Smaller organization,
ƒ Plan Eligibility: All employees (most plans); in some cases ƒ Benefit Description: Lump-sum death benefit of four times annual
more likelihood of plan differentiation for executives.provided only for staff categories. salary plus spouse’s/dependent’s pension; for DB plan, this is
ƒ Dependent Coverage: Yes. ƒ Benefit Description: LTD – Income continuation that amounts to typically 50% of members expected pension, while for DC plan it
two-thirds times salary, less the single state disability benefit (the
ƒ Benefit Description: Outpatient, hospitalization, maternity, is typically 25% of salary.
illness benefit outlined above). STD – Salary continuation for up
psychiatric and ambulance services, minor and major restorative ƒ Employee Contributions: None.
to six months. Usually 100% initially, reduced after a specified
treatment, doctor and specialist consultation fees. Percentage ƒ Plan Financing: Insurance policy; occasionally this is fully or
refund or monetary amount per visit. period.
partially self-insured by the pension fund (large pension
ƒ Employee Contributions: None for employee. None for ƒ Employee Contributions: None. schemes).
dependent coverage. ƒ Plan Financing: LTD – Insurance policy; unit rate as a ƒ Is Coverage Part of Another Plan? Yes, pension plan trust.
ƒ Plan Financing: Insurance policy. percentage of sum assured, or payroll. STD – No advance
financing.
ƒ Is Coverage Part of Another Plan? No, although there is a trend
toward inclusion in flexible benefits. ƒ Is Coverage Part of Another Plan? LTD – No, individual policy.
STD – No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Health insurance premium inflation is running at approximately ƒ Significant change in market for both company medical and risk ƒ Health Insurance (Miscellaneous Provisions) Bill 2008 addresses
16%. Escalating medical costs are forcing organizations to re- insurance. issues arising from the 2008 decision of the Supreme Court in
evaluate their provision. ƒ Medical: There is an opportunity to move companies over from a Bupa Ireland Ltd. v. Health Insurance Authority (risk equalization
ƒ Amendment to existing health insurance and tax legislation will defined plan to a health care allowance model where cost control scheme case).
ensure health insurance coverage is available without is handed back to the company and away from the insurers.
differentiation as to age and health status (see Key Legislation There is also an opportunity for a health flex tool to complement
section, at debate stage). this approach.
ƒ Finance Act 2008 tax relief on qualifying medical expenses ƒ Disability benefits: Large multinationals moving toward partial
granted at the standard rate only for the tax year 2009 onward. self-insurance in order to reduce premiums.
ƒ Death benefits: Employers self-insuring or partly self-insuring this
benefit are encouraged to consider full insurance due to under-
funding in the pension plan and because of the very competitive
insurance market.
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. 91
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

Italy Author: Massimo.Magni@mercer.com


Peer Reviewer: Carl.de.Montigny@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies National Institute of Social Security, or INPS, (old system) for people PLAN NAME INPS (new system). Since January 1, 1996, all first employment in
Practice hired before January 1, 1996. Employees with less than 18 years of private sector and employees with less than 18 years of contribution
participation in the social security system as of December 1995 to INPS in December 1995 are covered by the DC INPS system.
accumulate pension benefits under DC INPS from January 1996. Additionally, all employees may join on a voluntary basis an
All employees are also eligible for the mandatory termination industrywide collective DC plan established for most of the business
indemnity plan (TFR). Effective July 1, 2007, and depending on the sector. However, for managers in the commercial sector, there is a
employee’s decision, companies with more than 50 employees will mandatory participation in their industrywide collective DC plan
pay all future accruals into a pension fund or to INPS. For employers (FPDAC – Fondo Mario Negri).
with fewer than 50 employees, future TFR accruals may continue to
There are also companies offering additional arrangements (mostly
be book reserved. DC) on top of prior schemes, as described below.
Typical Market Approximate: Not prevalent. PLAN ELIGIBILITY By category of employees (executives more prevalent than
Practice % of multinational managers and professional employees).
and local leading NORMAL RET. AGE 65 males/60 females.
companies with a
BENEFIT FORMULA Accumulation of contributions with interest.
supplementary plan
25% DEATH & DISABILITY Not prevalent. Each pension fund may determine whether to provide
death and/or disability benefits.
VESTING Vesting of employer contributions: Immediate full vesting.
% of supplementary
plans EMPLOYEE Between 1% and 4% of annual gross salary.
CONTRIBUTION
DB: 0%
EMPLOYER Varies from 1% to 4%, most commonly matching the employee
DC: 100% CONTRIBUTION contribution.
Hybrid: 0%
FINANCING External pension fund.
FORM OF PAYMENT Combination of annuity and lump sum, or annuity only.
Executive-only
plans HYBRID ALTERNATIVES Not prevalent.
Common, especially OTHER Some pension funds offer investment options for employees.
among larger
companies
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ The tax-deductible limit for contributions paid into a pension fund ƒ Due to the potential reduction in future social security benefit ƒ At the end of December 2007, the Italian Parliament approved
(EUR 5,165 annual ceiling) does not permit high-salaried levels, there is a need for the younger generation to supplement welfare reform. From 2008, the age of eligibility for a seniority
employees to build up a reasonable supplementary pension the social pension. pension will progressively increase; through July 2009, employees
benefit. ƒ As a result of the TFR changes in 2007, companies are more had to be at least age 58 to qualify. In 2010, employees will
qualify for a seniority pension starting at age 59; the age
interested in understanding the implication and advantages of
increases to 61 starting in 2013.
setting up their own pension funds and/or looking for alternatives
to the current industrywide funds as a second choice for ƒ The possibility of retiring, regardless of age, with 40 years of
employees. contributions will remain.

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

Italy Author: Massimo.Magni@mercer.com


Peer Reviewer: Carl.de.Montigny@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Drugs, specialist visits, ƒ Benefits Provided by Social Security (INPS): Salary continuation ƒ Benefits Provided by Social Security: Life coverage for managers
laboratory tests and thermal cures in public hospitals. Benefit for sickness and pension for disability. is fully sponsored by employers as set out by the National
amount varies according to the age and income of the member. Collective Agreements; survivors’ pensions are dealt with by
ƒ Benefits Provided by Employer: Employer-sponsored plan for
ƒ Benefits Provided by Employer: National Collective Agreements sickness through collective agreement. Salary continuation varies social security; and lump-sum death is handled by company-
sponsored life coverage in the case of death either by natural or
cover hospitalization, dental care and specialist visits. from 50% to 100%, for a period of two to 12 months; average
accidental causes or due to disability.
ƒ Plan Eligibility: All residents are eligible. salary continuation is 60% for up to six months.
ƒ Plan Eligibility: All employees for social security benefits. All
ƒ Plan Financing: Financed through state taxes. Other plans are ƒ Plan Eligibility: All employees.
managers for life coverage.
financed through employer and employee contributions. ƒ Plan Financing: Sickness – Social security for certain categories
ƒ Plan Financing: Contributions to social security and payment of
of the industrial and commercial sector, and employer paid for
ƒ How Adequate Are Mandatory Benefits in Meeting Employee insurance premiums.
others. Pension – Social security.
Needs? Managers’ plans are adequate. Middle managers’ and
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
nonmanagers’ plans are inadequate. ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? For nonmanagers there is a lack of death benefits
Needs? Sickness – Usually medium to good. Disability –
coverage, especially for the generation participating only in the
Depends on degree of disability and time of contribution to INPS.
DC INPS pension system.
Typical Typical Typical
ƒ Plans: Medical. ƒ Benefits in accordance with managers’ collective agreements. ƒ Plans: Life, accidental death & dismemberment (AD&D).
Supplementary employer-sponsored plans for other employees
ƒ Prevalence: 75% of multinational and local leading companies. ƒ Prevalence: Multinational and local leading companies provide
are not common. AD&D plans for nonmanagers (30% of companies) and for
ƒ Plan Eligibility: Often for managers only (see Trends section).
managers (100% of companies).
ƒ Dependent Coverage: Yes.
ƒ Plan Eligibility: Life – All managers. AD&D – All employees.
ƒ Benefit Description: Plans usually reimburse major medical
ƒ Benefit Description: Life – Two to three times annual salary.
expenses (such as hospitalization and dental care) up to 100% of
AD&D – Three to four times annual salary for accidental death;
the amount not met by the managers’ mandatory plans.
four to five times annual salary for accident that resulted in total
ƒ Employee Contributions: None for employee. None for permanent disability.
dependent coverage.
ƒ Employee Contributions: None.
ƒ Plan Financing: Companies usually provide medical assistance
ƒ Plan Financing: Insurance policy.
to employees through a trust fund (cassa di assistenza) because
it is tax-effective. Premium depends on the performance of all the ƒ Is Coverage Part of Another Plan? No.
group medical plans using the trust fund.
ƒ Is Coverage Part of Another Plan? No.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT

Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ 2008 medical inflation: 2% (2008 national average rate of ƒ Supplemental medical plans for nonmanagers are gaining ƒ 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

Luxembourg Author: Ines.van.Arenbergh@mercer.com


Peer Reviewer: Lydia.Chenoy@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Social security. PLAN NAME All members receive DB only.
Practice
Typical Market Approximate: Commonly restricted to white-collar employees only, after trial PLAN ELIGIBILITY Commonly restricted to white-collar employees only, after trial period.
Practice period.
% of multinational
and local leading 65 (80% of plans) or 60 (20% of plans). No distinction between NORMAL RET. AGE 65 (90% of plans), or 60 or 63 (10% of plans). No distinction between
companies with a males and females. males and females.
supplementary
Of DB plans, 56% still provide an annuity equal to (5% S1 + 67% BENEFIT FORMULA Accumulation of contributions with interest.
plan
S2) x n/40, where:
82%
* S1 = pensionable salary up to the social security ceiling (EUR
100,965 on January 1, 2009);
% of * S2 = pensionable salary above social security ceiling; and
supplementary
* n = pensionable service.
plans
Of DB plans, 44% provide a lump-sum benefit equal to (155% S1 +
DB only: 32%
663% S2) x n/35.
DC only: 68%
Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
Hybrid: 0%
Vesting benefit: Three to seven years, average being five years. VESTING Vesting of employer contributions: Immediate full vesting in about one-
third of plans; up to two years otherwise.
Executive-only Employee contribution up to a maximum of EUR 1,200 per year on EMPLOYEE Employee contribution up to a maximum of EUR 1,200 per year on a
plans a separate contract. CONTRIBUTION separate contract.
Not prevalent Full cost of plan. EMPLOYER 3% S1 + 8% S2 (plus death and disability premiums), increased to 3%
CONTRIBUTION S1 + 12% for management categories.
Group insurance (most common) or pension fund (few cases). FINANCING Group insurance (most common) or pension fund (few cases).
Annuity or lump sum. FORM OF PAYMENT Typically lump sum (possible to require conversion into an annuity).
Not prevalent. HYBRID ALTERNATIVES Not prevalent.
Valuations: Annually. Local accounting standard: Luxembourg OTHER Employee investment choice: Yes (67%). All new DC plans provide the
GAAP. possibility for employees to choose their investment strategy.

PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Increasing impact of control authorities. ƒ Trends toward closing DB plans and setting up DC ƒ Single Status Law of May 13, 2008, became effective January 1,
ƒ 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. ƒ
ƒ New supplementary pension plan applicable to all salaried
members.
ƒ No automatic extension of existing pension plans to all members.
ƒ 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

Luxembourg Author: Ines.van.Arenbergh@mercer.com


Peer Reviewer: Lydia.Chenoy@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: The state program covers ƒ Benefits Provided by Social Security: STD – After three months, ƒ Benefits Provided by Social Security: Survivors’ and orphans’
100% of inpatient hospital expenses and 80% of outpatient pension subject to a ceiling for an additional nine months. LTD – pensions equal to a proportion of the flat-rate pension, plus an
treatment cost. The cost of drugs is reimbursed at varying rates Accrued basic and supplementary old-age pension, increased to earnings-related supplement, with benefits adjusted based on
between 0% and 100%. age 55 for disability prior to age 55. service and earnings for death prior to age 55. The orphans’
ƒ Plan Eligibility: All staff members, dependents and pensioners. ƒ Benefits Provided by Employer: STD – Full salary is paid up to pension is doubled if both parents are deceased. The combined
spouse’s and dependent children’s pensions cannot exceed the
ƒ Plan Financing: With the new law regarding single status, three months and is self-insured by the company.
pension entitlement at the date of death.
effective January 1, 2009, both blue- and white-collar employees ƒ Plan Eligibility: All staff members.
ƒ Plan Eligibility: All staff members.
will pay 2.95% of salary to social security. The employer pays an ƒ Plan Financing: Contributions to social security/self-insured.
identical contribution. ƒ Plan Financing: Included in social security contributions for
ƒ How Adequate Are Mandatory Benefits in Meeting Employee pension.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Barely adequate (basic coverage for staff with earnings
Needs? The state program is very adequate. There is limited ƒ How Adequate Are Mandatory Benefits in Meeting Employee
not exceeding state pension ceiling). Benefits very adequate for
need for supplementary coverage. Needs? Barely adequate (basic coverage for married staff with
staff with earnings up to social security ceiling.
earnings below state pension ceiling).
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Income replacement. No distinction is made between ƒ Plans: Death.
ƒ Prevalence: 56% of multinational and local leading companies long-term disability (LTD) and short-term disability (STD). ƒ Prevalence: Life – 85% of multinational and local leading
provide supplementary inpatient coverage. Supplementary ƒ Prevalence: 85% of multinational and local leading companies. companies. AD&D – Not typical.
outpatient coverage is provided by very few companies.
ƒ Plan Eligibility: All staff covered under the supplementary ƒ Plan Eligibility: All staff covered under the supplementary
ƒ Plan Eligibility: All employees. retirement plan. retirement plan.
ƒ Dependent Coverage: Yes. ƒ Benefit Description: Income replacement payable up to 70% of ƒ Benefit Description: Most companies provide lump-sum benefits
ƒ Benefit Description: Coverage of all hospitalization costs not earnings from the sixth month of disablement. Waiver of of two times annual salary plus 0.5 times annual salary per
retirement and death premiums. Typical formula provides for a dependent child. One-third of organizations provide spouse’s and
covered by social security. When outpatient service is provided,
benefit equal to 15% of earnings up to the social security orphans’ pensions – in some cases, in addition to lump-sum
coverage of outpatient/dental care costs.
ceiling, plus 70% of earnings above the social security ceiling. benefits. These are typically defined as a percentage of annual
ƒ Employee Contributions: None for employee. In about 50% of salary.
ƒ Employee Contributions: None.
plans, employee pays full cost for dependents.
ƒ Plan Financing: Group insurance contract with annual risk ƒ Employee Contributions: None.
ƒ Plan Financing: Individual insurance contracts grouped in a
premiums related to age and sex. ƒ Plan Financing: Group insurance contract with annual risk
collective scheme.
premiums related to age and sex.
ƒ Is Coverage Part of Another Plan? No. ƒ Is Coverage Part of Another Plan? Yes, separate contract (but
commonly part of a pension arrangement). ƒ Is Coverage Part of Another Plan? Separate contract but
commonly provided as part of a pension arrangement.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate: 7.4% (estimated for 2008). ƒ Growing interest from local companies to include supplementary
ƒ Growing debate about the financial sustainability of the current benefits in their total compensation package offering.
generous Luxembourg social security system. ƒ Supplementary benefits are becoming necessary for companies
to attract and retain valuable 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. 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

Netherlands Author: Tim.Burggraaf@mercer.com


Peer Reviewer: Eugenio.Koenders@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies General Old Age Pensions Act (AOW). PLAN NAME All members receive DB only.
Practice
Typical Market Approximate: All permanent employees (service requirement is applied by law). PLAN ELIGIBILITY Same as DB.
Practice Due to New Pension Act, the minimum entry age is 21 (from 2008).
% of multinational
and local leading 65 males/65 females. NORMAL RET. AGE 65 males/65 females.
companies with a
Equal to 1.75% of pension base per year of service. New plans set BENEFIT FORMULA Accumulation of age-related contributions plus investment return.
supplementary plan
up since January 1, 2006, have tended to have higher accrual Contributions: Five-year age brackets. Fiscal maximum: Based on
86% percentages (to compensate for early retirement plan closure). targeting 2.25% average pay. Typical practice: Percentage based on
1.75% – 2.25% and pensionable age (65).

% 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)
ƒ There have been discussions around age discrimination issues. ƒ Move toward career average DB plans. Move toward DC plans ƒ 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 ƒ New requirements regarding funding (FTK) and pension fund
case of a negative ruling. DC accounting).
governance became effective January 1, 2007.
ƒ The Dutch accounting and employer bodies cannot reach ƒ Interest in pan-European solutions is slowly rising. ƒ 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

Netherlands Author: Brenda.Soesman@mercer.com


Peer Reviewers: Rick.Wijsman@mercer.com; Gerrit.bij.de leij @mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Basic health package ƒ Benefits Provided by Employer: STD – 70% of total wage during ƒ Benefits Provided by Social Security: Widow’s pension (flat rate)
covers general medical care, nursing care in hospitals, specialist first 104 weeks of sickness, for salary up to the social security plus additional payments for a spouse with dependent children,
care, dental care for children, prescription drugs and medical ceiling for the first two years of absence. LTD – For permanent which ceases if he/she remarries or starts cohabiting. Survivors’
aids. full (80% – 100%) disability, 75% of the last wage (daily ceiling of allowance is means-tested. For some industries, AD&D coverage
ƒ Plan Eligibility: All residents are obliged to take out private (state- EUR 177) is payable. Partially (35% – 80%) disabled employees is mandatory.
regulated) health insurance. qualify for benefits under the WGA. ƒ Plan Eligibility: All employees or a certain group.
ƒ Plan Financing: Flat-rate premium of approximately EUR 1,100 ƒ Plan Eligibility: All employees. ƒ Plan Financing: Insurance policy.
(2009) plus taxes over 6.9% of earnings, up to EUR 32.369 p.a. ƒ Plan Financing: STD – Paid from company assets. LTD – ƒ How Adequate Are Mandatory Benefits in Meeting Employee
(as a contribution to the risk settlement fund, maximum contributions to social security or an insurance company. Needs? Barely adequate; a supplemental plan is highly
contribution EUR 2,233 p.a.). ƒ How Adequate Are Mandatory Benefits in Meeting Employee recommended.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee Needs? Barely adequate.
Needs? The basic health care insurance offers adequate basic
coverage; however, a supplemental plan is highly recommended.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Short-term disability (STD) and long-term disability (LTD). ƒ Plans: Accidental death & disablement (AD&D).
ƒ Prevalence: 68% of residents are insured through a collective ƒ Prevalence: STD – Depends on size of company and industry ƒ Prevalence: About 80% of multinationals have AD&D coverage.
program (where a group discount has been negotiated). About agreements (in the segment that includes small to midsize In some industries, due to collective labor agreements an AD&D
50% of multinationals provide a monthly allowance to employees. companies, about 50% have STD coverage. LTD – Depending is mandatory.
ƒ Plan Eligibility: Additional coverage is voluntary for all employees. on industry agreements, about 80% have additional plans (WGA ƒ Plan Eligibility: All employees.
ƒ Dependent Coverage: Typically. Gap and provision for the salary above maximum). ƒ Benefit Description: Death – Mostly two times annual salary.
ƒ Benefit Description: Coverage varies based on plan selected by ƒ Plan Eligibility: Additional coverage is voluntary. Permanent Disability – Mostly two to four times annual salary.
employee. Additional coverage may include dental, orthodontics, ƒ Benefit Description: STD – Insurance of the mandatory provision ƒ Employee Contributions: None.
alternative therapy and medicines. with a certain deductible. LTD – Insurance of the mandatory ƒ Plan Financing: Stand-alone insurance policy.
ƒ Employee Contributions: Flat-rate premium as mentioned in the provision for the salary above maximum daily wage and the WGA ƒ Is Coverage Part of Another Plan? AD&D – No. Other death
“mandatory” section. If a better plan is selected, the employee gap insurance. benefits are usually part of the retirement plan and are payable to
pays the balance of the cost. If a monthly allowance is provided ƒ Employee Contributions: STD – None. LTD – Depends on dependents in pension form.
to employees, this is typically 15% to 20% of flat-rate premium. agreements between employer and employees.
ƒ Plan Financing: Insurance policy. ƒ Plan Financing: STD – Insurance policy. LTD – Insurance policy
ƒ Is Coverage Part of Another Plan? It is recommended that both or provided as part of the retirement plan.
basic and supplemental plans be with the same insurance ƒ Is Coverage Part of Another Plan? Sometimes provided as part
company. of the retirement plan.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Participation in any group plan is voluntary, and as a result, ƒ The latest trend in cost saving for LTD is opting out of WGA.
participation fluctuates widely. In order to reduce the level of - An organization can choose to retain the benefit risks related
sickness and disability, ideal situation for employers is to achieve to the Reintegration Scheme for the Partially Capable (WGA)
100% participation. This calls for creative solutions that by opting out of the public scheme and shifting risk to a
encourage participation in a group plan. private insurer.
- Depending on the organization (type of industry,
WAO/WGA/sick leave claims history, income), some
significant savings can be achieved by moving to a private
insurer.
- It is expected that the system will be fully privatized by
January 1, 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. 97
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

Norway Author: Elling.Lundesgaard@mercer.com


Peer Reviewer: Simen.Lunaas@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies National Insurance Scheme (social security benefits are paid from PLAN NAME A mandatory occupational pension – which can be DB or DC – was
Practice age 67). A mandatory occupational pension – which can be DB or introduced on July 1, 2006.
DC – was introduced on July 1, 2006.
Typical Market Approximate: All employees from age 20 upon date of hire. PLAN ELIGIBILITY All employees from age 20 upon date of hire.
Practice % of multinational 67 males/67 females is most common for tax reasons. Some NORMAL RET. AGE 67 males/67 females is most common for tax reasons. Some
and local leading occupational groups may retire at an earlier age. occupational groups may retire at an earlier age.
companies with a
Between 60% and 70% of final salary, including social security BENEFIT FORMULA Accumulation of contributions with interest.
supplementary plan
pension. The benefit description is often as simple as this. No
100% formula is typical.
Included in retirement plan: Death – Yes, for pension (annuity) DEATH & DISABILITY Included in retirement plan: Death – Yes, but not as common as for
% of supplementary benefits. Disability – Yes, for pension (annuity) benefits. DB. Disability – Yes, for pension (annuity) benefits.
plans Vesting benefit: After one year of plan membership. VESTING Vesting of employer contributions: After one year of plan
DB: 40% but membership.
reducing Not required. Usually none. If employee contributes, 2% of earnings EMPLOYEE Not required. Tax-approved DC plans historically did not allow for
DC: 60% and up to 50% of the individual premium/contribution and maximum 4% CONTRIBUTION employee contributions. From July 1, 2006, this is now possible.
increasing of pensionable income.
Hybrid: 0% Full cost of plan. EMPLOYER Minimum of 2% of salary between one base amount (G) and 12G.
CONTRIBUTION (1G = NOK 70,256 as of May 1, 2008). Maximum 5% of salary
between 1G and 6G, and 8% of salary between 6G and 12G.
Executive-only
Must be insured or secured through an autonomous pension fund if FINANCING Must be insured or secured through an autonomous pension fund if
plans
tax approved. The vast majority of plans are insured. tax-approved. The vast majority of plans are insured.
Fairly common,
Annuity. FORM OF PAYMENT Annuity. Minimum 10 years.
especially for
employees with Not prevalent. HYBRID ALTERNATIVES Not prevalent.
salaries above the
Valuations: Annually. OTHER Employee investment choice: Yes.
tax limit
Local accounting standard: NRS 6.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Restrictive legal framework for DC plans, compared to that ƒ Many major multinationals are evaluating DC for future ƒ As of January 1, 2007, employer’s contribution to all top-hat plans
available for the average DB plan. employees. (pensions for executives and high-salaried employees) and early
retirement group plans became fully taxable as income.
ƒ Tax deduction for contributions to individual pension plans of up ƒ The introduction of new social security pension will require
to NOK 15,000 per year was introduced in 2008. changes in pension schemes from 2011. ƒ New social security pension to be introduced by 2011 (postponed
from 2010). This will affect both retirement and disability
pensions.
ƒ New legislation concerning insurance companies and pension
funds will apply from 2008.
ƒ Tariff-agreed early retirement (AFP) from ages 62 to 67 has been
replaced by a yearly supplement for life from age 62. To be
introduced from 2011.

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

Norway Author: Elling.Lundesgaard@mercer.com


Peer Reviewer: Simen.Lunaas@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefit Provided by Social Security: Most necessary medical ƒ Benefits Provided by Social Security: Short-term disability benefit ƒ Benefits Provided by Social Security: Spouse and dependent
benefits. Limited dental coverage is provided by social security. (National Insurance Scheme will pay the salary up to 6G from the children’s pension.
Vision is normally not covered by social security. Special rules 17th day to the end of 12 months), as well as long-term disability. ƒ Plan Eligibility: All residents.
apply for work-related illnesses and accidents.
ƒ Benefit Provided by Employer: Employer is required to pay full ƒ Plan Financing: Contributions to social security. Nonsalaried
ƒ Plan Eligibility: All residents. salary for the first 16 days of disability (salary capped at 6G).
employees are noncontributory.
ƒ Plan Financing: Contributions to social security. Nonsalaried ƒ Plan Eligibility: All residents. Only those employed for at least 14
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
employees are noncontributory. days are covered by short-term disability. Needs? Inadequate.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ Plan Financing: Contributions to social security. Nonsalaried
Needs? Waiting lists for hospitals and specialists has created a employees are noncontributory.
market for additional private health insurance.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Inadequate.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD), long-term disability ƒ Plans: Death and accidental death & dismemberment (AD&D).
ƒ Prevalence: 15% of multinational and local leading companies (LTD) or short-term disability (STD). ƒ Prevalence: 90% of multinational and local leading companies.
(ranges between 0% to 25%, depending on sector/industry) – a ƒ Prevalence: TPD – Typical. STD – Not typical. ƒ Plan Eligibility: All employees.
growing number of Norwegian employers have introduced
ƒ Plan Eligibility: All employees. ƒ Benefit Description: Death – Lump-sum ranges from 10G to 40G.
alternative health insurance.
ƒ Benefit Description: TPD – Lump sum on total permanent Spouses’ pension whenever applicable, equal to 40% – 60% of
ƒ Plan Eligibility: All employees.
disability (amount will vary by age and salary). LTD: 60% – 70% retirement pension (not a common practice). AD&D – Similar to
ƒ Dependent Coverage: No. of salary. STD – When provided, coverage for salary over 6G is the levels of death coverage.
ƒ Benefit Description: Most medical assistance in areas where provided. ƒ Employee Contributions: None.
social security fails. ƒ Employee Contributions: None. ƒ Plan Financing: Lump-sum group life and AD&D are covered
ƒ Employee Contributions: Normally none. Premium paid by ƒ Plan Financing: LTD and TPD – Insurance policy. STD – Self- through insurance policy. Dependents’ pension is covered
employer is taxed as income for employee. insured. through insurance policy or through a self-administered pension
ƒ Plan Financing: Insurance policy. ƒ Is Coverage Part of Another Plan? LTD – Yes, often is a rider to fund.
DB retirement plans. TPD – No. STD – No. ƒ Is Coverage Part of Another Plan? Group life could be bundled
ƒ Is Coverage Part of Another Plan? No.
with AD&D. Dependents’ pension is part of the retirement plan.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate (April 2008 – April 2009): 3.0%.

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

Portugal Author: Maria.Ratinho@mercer.com


Peer Reviewer: Cristina.Duarte@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory Almost all private Social security. PLAN NAME Since March 1, 2008, a new regime of public individually funded
Practice companies (main schemes has been implemented. The schemes are being
exception: introduced to encourage savings for retirement. They are funded
banking sector) through employee contributions only, are externally managed by the
state and are tax-deductible. Plan contributions are 2% or 4% if
employee is less than 50 years old, and 2%, 4% or 6% if older than
50 years old. Changes can be made once a year.
Typical Market Approximate: Most companies cover all permanent employees for tax-efficiency reasons. PLAN ELIGIBILITY Most companies cover all permanent employees for tax-efficiency
Practice % of Eligibility upon date of hire. reasons. Typically eligible upon date of hire; however, some plans
require one to two years of service prior to eligibility.
multinational and
local leading 65 males/65 females. NORMAL RET. AGE 65 males/65 females.
companies with a
After a full career, benefits provided are usually between 10% and 20% of BENEFIT FORMULA Accumulation of contributions with interest.
supplementary
final salary. There is no typical formula.
plan
45% Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death – Yes. Disability – Yes.
Vesting is uncommon for DB plans. The most common situation (probably VESTING Vesting of employer contributions: Usually after one to 10 years of
80% to 90% of DB plans in Portugal) is that employees receive no service (progressive vesting) or three to 10 years of service (full
% of supplementary retirement benefit if they resign before retirement age. vesting).
supplementary
plans Usually none. However, the pension plan of the banking sector includes EMPLOYEE Typically not required. Trend is toward allowing voluntary employee
employee contribution. Employee contributions are mandatory in the CONTRIBUTION contributions. It is also becoming popular for companies to match
DB: 46% banking sector only. employee voluntary contributions up to a certain level (in addition to
DC: 47% company base contribution).
Hybrid: 7% Full cost of plan (in bank sector, balance of the plan cost). EMPLOYER Full cost of plan.
CONTRIBUTION
All plans must be externally funded through insurance contract or FINANCING All plans must be externally funded through insurance contract or
Executive-only
approved pension fund to gain tax efficiency. Internal financing/book approved pension fund to obtain tax efficiency.
plans
reserve is permitted by law, but the company pays full taxes.
Not typical yet,
The majority of DB plans provide benefits through annuities. FORM OF PAYMENT The majority of DC plans allow some flexibility in the form of
but increasing
benefits payment (options limited by tax-efficiency purposes).
trend (negative
tax impact for Not prevalent. HYBRID ALTERNATIVES Not prevalent.
executives)
Valuations: Annually. Local accounting standard: DC 19/IAS 19. OTHER Employee investment choice: This is becoming more popular.
PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Restrictive tax framework around the process of plan conversion ƒ Pillar III of retirement provision (individual plans) is now expanding. ƒ New contributive taxes for the social security system are going
makes it difficult for companies to close DB plans to new to be in force starting in October 2009. These new contributive
entrants. Main alternatives are for the company to apply only taxes aim to prevent short-term contracting and incentivize the
one plan for all employees or to allow a choice between two payment of social security contributions for full salary.
plans (old and new) for all employees, including new entrants.
ƒ The latest changes in social security benefits are forcing many
companies to review their supplemental pension arrangements
(Pillar II).

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

Portugal Author: Lucília.Silva@mercer.com


Peer Reviewer: Paulo.Fradinho@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefit Provided by National Health Service: Hospitalization, ƒ Benefits Provided by Social Security: STD – The daily allowance ƒ Benefits Provided by Social Security: Widows, as well as orphans
maternity, outpatient services, emergency transport, vaccination, is equal to 65% of the average daily salary in the six-month under age 18 – 22 or 25 if in full-time education (high school or
prosthesis and medicines. period ending two months prior to illness, and is tax-free. The college) – are eligible for a pension. This is equal to 20% of
ƒ Plan Eligibility: All citizens and residents. benefits are payable for up to a maximum of 1,095 days. After covered earnings, increasing to 50% for three or more children.
ƒ Plan Financing: Taxes and transfers from government general 1,095 days, a permanent disability pension (LTD) becomes The rates are doubled for full orphans, up to 80% of covered
payable. After 365 days of disability, it amounts to 70% of the earnings.
budget.
average daily salary. ƒ Plan Eligibility: Deceased person must have contributed for at
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
ƒ Plan Eligibility: Active employees. STD – After third day. LTD – least 36 months.
Needs? Adequate except for dental coverage, as only 8% of
After five years of contributions; each year must include at least ƒ Plan Financing: Contributions to social security.
dentists are in the public system. Long waiting time for surgeries,
hospital visits and some exams. 120 days of contributions. The five-year period is not required if ƒ How Adequate Are Mandatory Benefits in Meeting Employee
the employee is declared permanently disabled for work, after a Needs? Minimal coverage is provided.
sickness period of 1,095 days.
ƒ Plan Financing: Contributions to social security.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? Adequate.
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Short-term disability (STD), long-term disability (LTD) and ƒ Plans: Death and accidental death & dismemberment (AD&D).
total permanent disability (TPD).
ƒ Prevalence: Up to 80% of multinational and local leading ƒ Prevalence: 57% of multinational and local leading companies.
companies. 20% of population is covered by private medical ƒ Prevalence: STD – 32% of multinational and local leading ƒ Plan Eligibility: All employees.
insurance, mostly through company-paid plans. companies. LTD and TPD – 57% provide coverage through life
insurance and 39% through accident insurance. ƒ Benefit Description: Most companies supplement the social
ƒ Plan Eligibility: Typically one plan for all employees. security benefits with group life insurance of around two annual
ƒ Plan Eligibility: All active employees.
ƒ Dependent Coverage: Yes. Employees are allowed to extend salaries, which is usually doubled in case of accident. Some
coverage, at their own cost, to family (spouses and children). ƒ Benefit Description: STD – Employer supplements social security pension plans also provide survivors’ benefits, generally equal to
ƒ Benefit Description: Medical – Hospital accommodation; sickness benefits, up to 100% of the employee’s net salary. LTD a percentage of the accrued pension, commonly 60% for the
– Permanent disability benefits are sometimes granted under the spouse with supplementary orphans' pensions. Some pension
surgeons’ and anesthetists’ fees; specialist consultation fees;
ill-health early retirement provisions of company pension plans. plans also provide survivors’ benefits, commonly 60% for the
outpatient visits; exams, drugs and dressings. Dental and vision
– Reimbursement up to fixed limits, depending on nature of Insured LTD programs do exist, but are not yet widespread. TPD spouse with supplementary orphans’ pensions.
– Lump sum is usually 14 to 28 times monthly salary.
treatment. ƒ Employee Contributions: None.
ƒ Employee Contributions: None.
ƒ Employee Contributions: None for basic employee level of ƒ Plan Financing: Insurance policy.
coverage. Generally, employee pays full cost of dependent ƒ Plan Financing: STD – Self-insured. LTD – Provided as part of ƒ Is Coverage Part of Another Plan? Death – Often provided as a
coverage, although for older plans some employers pay full cost retirement plan (fully insured plans are rare). TPD – Fully rider to the retirement plan. AD&D – Usually a rider to life
of dependent coverage. insured.
insurance policy.
ƒ Plan Financing: Insured. Largest plans tend to be self-funded. ƒ Is Coverage Part of Another Plan? STD – No. LTD – Yes, the
ƒ Is Coverage Part of Another Plan? No. retirement plan or as a rider to group life or accident insurance
(lump sum). TPD – Yes, as a rider to life insurance policy.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate (2008): 1.4%. ƒ Little emphasis on preventive medicine, although this has
ƒ Spouse and dependents’ premium is now being considered an changed in recent years and there are now regular health checks
inefficient fiscal cost by some state representatives. required for children and elders.
ƒ Many benefits provided by large employers are mandated by ƒ Increased popularity of flex plans, still limited to a small number
collective agreements, removing flexibility in design. of benefits due to unclear legal and tax framework.
ƒ The government is reducing access to public facilities and ƒ Cost control is a challenge for most companies, and the trend is
increasing out-of-pocket requirements. to reduce level of coverage or transfer cost to 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. 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

Spain Author: JuanLuis.Alonso@mercer.com


Peer Reviewer: Eduardo.Jauregui@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Social security. PLAN NAME All members receive DB only.
Practice
Typical Market Approximate: Qualified plans must be accessible to all employees with two years PLAN ELIGIBILITY Qualified plans must be accessible to all employees with two years
Practice of service. Service requirement: No typical practice. Nonqualified of service. Service requirement: No typical practice. Nonqualified
% of multinational
and local leading plans: In most cases granted to managers or upper levels only. plans: In most cases granted to managers or upper levels only.
companies with a 65 males/65 females. NORMAL RET. AGE 65 males/65 females.
supplementary plan
There is no typical benefit formula. BENEFIT FORMULA Accumulation of contributions with interest.
57%
Included in retirement plan: Death – Yes. Disability – Yes. DEATH & DISABILITY Included in retirement plan: Death before retirement – Yes.
Disability – Yes.
% of Vesting benefit: Immediate full vesting in tax-qualified plans. In VESTING Vesting of employer contributions: Immediate full vesting in
supplementary case of nonqualified plan, 100% vesting usually between one and qualified plans.
plans 10 years of service.
DB: 4% Not required. None. EMPLOYEE Employee contributions are allowed in 58% of the plans. They are
DC: 89% CONTRIBUTION compulsory in only 44% of these 58%.
Hybrid: 7% Full cost of plan. Cost determination follows rules for external EMPLOYER No typical practice; however, in most recently implemented plans it
funding. CONTRIBUTION ranges from 100% to 200% of employee contributions.
Normally insurance policy. FINANCING All employee plans: Qualified pension fund more typical than
Executive-only
insurance policy. Executive plans: Only insurance policy.
plans
Common for Choice of annuity or lump sum. FORM OF PAYMENT Choice of annuity or lump sum.
companies to Sometimes a company has a pure DC plan for all employees, plus HYBRID ALTERNATIVES Sometimes a company has a pure DC plan for all employees, plus
provide additional a DB plan for managers that supplements the DC plan, so that the a DB plan for managers that supplements the DC plan, so that the
benefits for higher- sum of both plans achieves a defined benefit target. sum of both plans achieves a defined benefit target.
paid employees
through Valuations: Annually. Local accounting standard: Follow external OTHER Employee investment choice: No.
supplementary DC or funding rules – require past service to be fully funded (qualified
DB plans plan) or insured (nonqualified plan).

PENSION ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Personal Income Tax law, effective January 1, 2007: The law ƒ 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
ƒ 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

Spain Author: JuanLuis.Alonso@mercer.com


Peer Reviewer: Eduardo.Jauregui@mercer.com
Medical, Sickness, Disability & Death Benefits
EMPLOYER PRACTICE
Medical Benefits Sickness & Disability Benefits Death Benefits
Mandatory Mandatory Mandatory
ƒ Benefits Provided by Social Security: Inpatient and day-care ƒ Benefits Provided by Social Security: Short-term disability (STD): ƒ Benefits Provided by Social Security: If an employee dies prior to
treatment covered in state hospitals. General practitioners, Cash sickness benefits amount to 60% of social security retirement, the widow’s pension is equal to 52% of the base. The
specialist visits, maternity benefits, wheelchair, crutches, etc. contribution earnings. After the 21st day, the rate increases to base is a) For death due to non-work-related disease/accident,
Dental benefits: Visits and extractions are included. Eye tests are 75% for a period of up to 12 months. Long-term disability (LTD) – the employee’s best 24 months in the last eight years, divided by
covered. Pension amounts to 55% of social security contribution earnings. 28; b) For death due to work-related disease/accident,
ƒ Plan Eligibility: All citizens. Permanent/major disability – Pension amounts to 100% of social employee’s current annual salary. For employee death prior to
security contribution earnings. Partial disability – Individual retirement, there is also an orphans’ pension benefit paid to the
ƒ Plan Financing: Contributions to social security. receives a lump sum of 24 times total previous monthly earnings. person taking care of the child. The amount of the orphans’
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ Plan Eligibility: All Spanish residents age 16 or over who are pension for each child is equal to 20% of base.
Needs? Medical mandatory system in Spain is good, but for gainfully employed. STD – Benefits are subject to the payment of ƒ Plan Eligibility: All Spanish residents age 16 or over who are
nonemergency care there are usually long waiting periods that do 180 days of contributions in the last five years. gainfully employed.
not exist under private medical programs.
ƒ Plan Financing: Contributions to social security. ƒ Plan Financing: Contributions to social security.
ƒ How Adequate Are Mandatory Benefits in Meeting Employee ƒ How Adequate Are Mandatory Benefits in Meeting Employee
Needs? STD is adequate. Supplementary LTD is frequently Needs? It is frequent to provide supplementary death benefits
provided (usually included in Collective Bargaining Agreement (usually included in CBA).
(CBA).
Typical Typical Typical
ƒ Plans: Medical. ƒ Plans: Total permanent disability (TPD) and short-term disability ƒ Plans: Death and accidental death & dismemberment (AD&D).
(STD).
ƒ Prevalence: 59% of companies offer supplementary medical. ƒ Prevalence: 84% of multinational and local leading companies.
More than half of companies that offer health insurance also offer ƒ Prevalence: TPD for 84% and STD for 90% of companies.
ƒ Plan Eligibility: All employees.
dental coverage. ƒ Plan Eligibility: All employees.
ƒ Benefit Description: There are two kinds of death benefits:
ƒ Plan eligibility: Occupational group medical plans used to be only ƒ Benefit Description: STD – Most employers supplement social
for executives, but the trend is to extend them to all employees. security. TPD – There are two kinds of TPD benefits: (1) A lump sum in case of death due to any cause or accidental
Some companies offer two separate plans: medical assistance cause. Death due to any cause normally is twice the salary, for
(1) Offer lump sum in case of total permanent disability due to
for all the employees and medical reimbursement for executives. all employees; death in case of accident is 2.5 times annual
any cause or accidental cause (typically two times annual salary).
salary.
ƒ Dependent Coverage: Yes. Disability in case of accident is 2.5 times annual salary.
(2) Average insured capital varies according to the category (2) Average insured capital varies according to the category
ƒ Benefit Descriptions: Employee can choose from list of doctors
(EUR 41,000 for general employee and EUR 120,000 for top (EUR 38,000 for employee and EUR 126,000 for top
and receive 80% reimbursement of the cost. management). Death in case of accident is EUR 60,000 for
management). Accidental disability is EUR 58,000 for general
ƒ Employee Contributions: None for employee coverage and 50% employee and EUR 112,000 for top management. general employee and EUR 133,000 for top management.
cost of dependent coverage. ƒ Employee Contributions: None.
ƒ Employee Contributions: None.
ƒ Plan Financing: Insurance policy. ƒ Plan Financing: Insurance policy.
ƒ Plan Financing: Insurance policy.
ƒ Is Coverage Part of Another Plan? No. ƒ Is Coverage Part of Another Plan? Sometimes included in
ƒ Is Coverage Part of Another Plan? STD – No. TPD – Sometimes
included in qualified plans. qualified plans.
MEDICAL, SICKNESS, DISABILITY & DEATH BENEFITS ENVIRONMENT
Threats and Restrictions Opportunities and Trends Key Legislation (Recent or Proposed)
ƒ Medical inflation rate (2008): 4%. ƒ Flexible benefits increase in popularity.
ƒ Demand for dependent care benefits is increasing.

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

Sweden Author: Carl.Westlund@mercer.com


Peer Reviewer: Hans.Malmstrom@mercer.com
Retirement
EMPLOYER PRACTICE
Prevalence DB DC
Mandatory All companies Old system: National basic pension scheme (AFP) and PLAN NAME New system since 1999: Income-related old-age pension.
Practice supplementary pension scheme (ATP).
Typical Market Approximate: Old ITP: Plan is for salaried employees (mandatory if there is a PLAN ELIGIBILITY SAF-LO plan for wage earners (mandatory if there is a collective
Practice collective agreement in place, as in nearly all big companies). agreement in place, as in nearly all big companies).
% of multinational
and local leading Alternative ITP: Employee with salary higher than 10 IBA (SEK Alternative ITP for salaried employees (see left).
companies with a 509,000 in year 2009) can opt out of old ITP and choose the New ITP plan from July 1, 2007: All new entries at age 25 (and for all
supplementary plan alternative ITP, a DC for salary parts over 7.5 IBA (an employee
employees born after January 1, 1979). If a company is a new
cannot opt out of the new ITP). Note that there is a new (DC) plan for
100% subscriber to ITP, the central association partner may approve the
individuals born after January 1, 1979. inclusion in the new ITP of all employees regardless of age.
IBA = Income base amount (2009: one IBA = SEK 50,900).
% of supplementary
plans 65 males/65 females. NORMAL RET. AGE 65 males/65 females.

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)
ƒ For companies that do not have a collective agreement and ITP ƒ 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 ƒ 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

Sweden Author: Carl.Westlund@mercer.com