[Square] Urgent Protection of Retirement Pension Benefits for Workers

Ryu Geonsik, Senior Research Fellow at the Insurance Research Institute

Ryu Geon-sik, Senior Research Fellow at the Korea Insurance Research Institute

The retirement pension system was introduced in 2005 to address the issue of benefit entitlement when companies go bankrupt or face financial difficulties, causing employees to be unable to receive their retirement benefits.

Since the introduction of the system, more than 50% of all regular employees have enrolled, and the scale of retirement pension reserves reached 221 trillion won by the end of 2019, demonstrating quantitative growth. Outwardly, the retirement pension system appears to have established itself as a pillar of the old-age income security framework.

Nevertheless, policies related to the protection of benefit entitlements for the substantial improvement of the retirement pension system remain stagnant. Although there have been several legislative amendments, policies protecting benefit entitlements have been only partially implemented, resulting in a significant gap from actual protection.

For example, about 60% of companies with retirement pension plans fall short of the statutory funding ratio, and the function of the Wage Claim Guarantee Fund system is also very limited.

In contrast, advanced countries such as the United States protect workers' benefit entitlements through complete external funding, strict timely corrective measures, and legal guarantees via payment guarantee systems. From this perspective, it is necessary to seek benefit entitlement protection policies that maintain international consistency while sufficiently considering the financial burden on companies.

To this end, first, the system should be supplemented to achieve 100% complete external funding, while simultaneously implementing measures to alleviate the financial burden on small businesses, such as corporate tax reductions and low-interest working capital loans.

It is also necessary to gradually shorten the amortization and recalculation periods for past service liabilities and strictly apply timely corrective measures to employers who do not fund the statutory minimum contributions.

Considering that small and medium-sized enterprises that have not introduced retirement pensions cite increased financial burden (27.5%) as the primary obstacle, separate support measures for small businesses should be explored.

Second, to enhance the usefulness of the priority payment system for retirement benefits, the priority payment period for retirement benefits should be extended from the current 3 years to at least the average employee tenure (6.1 years) or longer.

The application procedures and methods should also be greatly simplified to facilitate workers' use of their priority payment rights. Although workers are legally granted priority payment rights, the system requires workers to apply themselves and participate in court auctions, making practical use difficult.

Third, the function of the Wage Claim Guarantee Fund system, which compensates part of retirement benefits in the event of company bankruptcy, needs to be strengthened.

To this end, the retirement benefit portion should be separately segregated within the Wage Claim Guarantee Fund, and new provisions regarding payment scope and guarantee levels should be established based on this.

In the long term, when transitioning from a contract-type governance structure to a fund-type governance structure involving various stakeholders, it is desirable to actively consider introducing an Anglo-American style payment guarantee system to legally secure benefit entitlements.

The fundamental purpose of the retirement pension system is to convert retirement pay into a pension and ensure stable old-age income security through benefit entitlements. Therefore, whether the benefit entitlement protection system is properly established and implemented affects not only the system's reliability but also its establishment and development. From this perspective, it is time to pool wisdom to establish a framework for benefit entitlement protection policies through sufficient consensus among labor, management, and government.

This content was produced with the assistance of AI translation services.