• Taiwan: Implementation of Adequate Funding of the Labor Pension Reserve Fund under the Amended Labor Standards Act Begins in 2016
  • October 25, 2016 | Authors: Jean Kuo; John C. Lin; Raymond H.Y. Wang
  • Law Firm: Jones Day - Taipei Office
  • In Taiwan, the labor pension reserve fund is the fund from which employees eligible for the pension scheme under the Labor Standards Act ("LSA") (generally referred to as the "Old Pension Scheme") receive their pension payments upon retirement. Pursuant to the old LSA, employers were required to contribute between 2 percent and 15 percent of their total monthly payroll to the labor pension reserves fund. Employers were required to take into consideration the length of service of their employees, their employee wage structures, employee turnover rates, and other factors when determining their contribution rate. However, more than 80 percent of employers have been contributing to the labor pension reserves fund at just the 2 percent minimum contribution rate.

    In recent years, the insufficient funding of the labor pension reserve fund has led to an uptick in disputes between employees and employers over outstanding pension and severance payments after the employer had ceased operations or been declared bankrupt. In light of this, the LSA was amended on February 4, 2015, to require employers to annually review whether their funding of the labor pension reserve fund is sufficient to cover the total amount of pension payments to employees who are eligible for retirement within a year. If necessary, employers must make up for any shortfalls by March 31 of the following year. In conjunction with the amendment of the LSA, the Ministry of Labor has also introduced rules on how to calculate the adequate level of funding of the labor pension reserve fund, so that employers are prepared for the implementation of the LSA amendments.

    As a consequence of the amendments, employers can no longer contribute to the fund at just the 2 percent minimum contribution rate. Any employer who fails to fulfill the funding requirements will be liable for fines ranging from NT$90,000 to NT$450,000. Local governments have begun issuing such fines as of July 2016. Since the implementation of the amended LSA, labor pension reserves fund contributions by employers have skyrocketed. According to statistics released by the Ministry of Labor in July 2016, historic yearly contributions to the labor pension reserve fund by employers averaged approximately NT$60 billion per year. By way of comparison, in 2015, employer contributions to the labor pension reserve fund totaled NT$83.6 billion, whereas in the first six months of 2016, employer contributions had already reached NT$167.4 billion. Additionally, the number of employers who have met the funding requirements has grown to 98,000, representing more than 80 percent of all employers.