KCCI Opposes Introduction of 'Fund-Type' Retirement Pension... Concerns Over Investment Losses

[Asia Economy Reporter Kim Ji-hee] The Korea Employers Federation announced on the 2nd that it has submitted its opposition to the National Assembly regarding the legislative proposal of the "Partial Amendment to the Act on Guarantee of Workers' Retirement Benefits," which was introduced by Representative Han Jeong-ae of the Democratic Party of Korea. The opposition is based on concerns that changing the current "contract-type" system to a "fund-type" system could expose retirement benefits to risks and potentially become a new source of labor-management conflict.

The amendment proposes replacing the current contract-type system, where companies directly contract with retirement pension providers to entrust the operation and management of reserves, on the premise that the lack of expertise and indifference of subscribers results in low returns. As an alternative to strengthen the retirement pension's function of securing old-age life, it suggests introducing a fund-type system where companies establish a separate trust corporation with equal labor and management representation and external experts as directors to set up a trust.

The Korea Employers Federation stated, "The low returns in the contract-type system are due to the fact that about 90% of the total reserves are invested in principal-guaranteed assets," adding, "This is intended to ensure stable old-age life in the future."

It further pointed out, "The fund-type system may expand performance-based asset management such as stocks and funds because the trust corporation's board of directors acts as a proxy for individual subscribers' reserve management instructions. However, this does not guarantee higher returns than principal-guaranteed assets without investment losses, so it is unrelated to strengthening workers' benefit rights." It added, "Moreover, even in financially advanced countries, frequent financial accidents occur due to moral hazard and illegal acts by trust corporations, so there is a high possibility that retirement benefits will be exposed to risks."

The Korea Employers Federation emphasized, "Regarding the responsibilities of the trust corporation, the amendment leaves the actual responsibility for damages such as investment losses unclear, which inevitably shifts the responsibility for fund management to the employer, the legal entity establishing the retirement benefit system." It also stressed, "In workplaces with unstable labor-management relations, issues unrelated to fund management may become contentious, potentially acting as a new factor in labor-management conflicts."

Therefore, the Korea Employers Federation stated, "To improve the current asset management structure focused on principal-guaranteed products, it is desirable to encourage employers and workers to select appropriate investment products under their own responsibility," and conveyed that it has submitted opinions opposing the legislation.

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