The Ministry of Labor issued the Lao-Dong-Fu-Three-1070135081 Circular of February 21, 2018 (hereinafter, the “Circular”) to communicate an explanation about a business entity’s formulation of preferential retirement rules to incorporate the years in services of employees who have been transferred between affiliated enterprises as well as the utilization of a labor pension reserve to pay pension.
It was first pointed out in the Circular that the years in service of an employee shall be limited to the service for the same business entity and shall commence on the date of employment pursuant to Article 57 of the Labor Standards Law and Article 5 of its enforcement rules.Under Article 8, Paragraph 1 of the Labor Pension Statute (hereinafter, the “Statute”), when an employee is rehired after termination of employment after the effective date of the Statute (July 1, 2005), the pension system (the New System) under the Statute shall apply.Since affiliated enterprises are separate and independent juristic persons under the law, when an employee is transferred between the affiliated enterprises, this no longer involves the performance of the original labor contract since one party to the contract or the recipient of the service has changed.Therefore, if an employee is transferred between affiliated enterprises after the effective date of the Labor Pension Statute on July 1, 2005, the New System shall apply pursuant to the above-mentioned provision.
It was further pointed out in this Circular that if a business entity formulates preferential retirement rules to incorporate and apply the years in service of employees during their employment at different business entities and to pay pension pursuant to the old pension system, this is an agreement on private law pension obligations more preferential to statutory requirements. However, there is no public law obligation to contribute to the labor pension reserve a result, and if its utilization is approved, the statutory rights and interests of employees under the old pension system may be affected. Therefore, such pension certainly cannot be paid out of the dedicated labor pension reserve accounts of the new and old business entities, and the employers are required to raise funds separately to pay the pension.
Finally, according to this Circular, local competent authorities are required to follow the following requirements when accepting a business entity’s application to record the preferential retirement rules which combine the years in service of employees from their employment at different business entities and pay pension accordingly and to utilize the labor pension reserve.First, if the preferential retirement rules formulated by business units to incorporate the years in service of employees from their employment with different business entities and to pay pension accordingly have been recorded with local competent authorities, the utilization of the labor pension reserve should be approved, under the principle of legitimate expectation, to the extent that the previously recorded preferential pension may be paid out of the dedicated labor pension reserve account. After the utilization, however, sufficient amounts shall still be contributed to the balance of the dedicated account pursuant to Article 56, Paragraph 2 of the Labor Standards Law.In addition, beginning with the date of this Circular, when a business entity submits new preferential retirement rules for recordation, the local competent authority may only record the combination of years in service, while the pension for the combined years in service shall be raised by the employer on its own without utilizing the labor pension reserve.